Tax Tips for Charitable Donations

Canadians are very good at giving. In fact, we rank fourth in the world of 140 countries surveyed in the World Giving Index.*

Dentists in particular are very good about giving—we’ve heard many examples of the charities you are passionate about. Donations to any officially registered charitable organization qualify for a non-refundable tax credit. You can claim donations by December 31st of the current year, as well as any unclaimed donations made in the previous five years. You can also claim any unclaimed donations made by your spouse or common law partner in the year, or in the previous five years.

 

TIP: To maximize the credit, all donations should be lumped together and filed by the higher earner.

 

Which Donations Qualify

  • Financial donations to registered charities.
  • Donations of tangible assets such as real estate, cultural property and works of art—the charity will provide a receipt for fair market value. (The CRA may require an independent appraisal for anything worth more than $1,000.)
  • Charitable dinners or other events—the organizers will provide a receipt for the amount over and above the cost of the dinner itself.

 

TIP: If you donate publicly traded stocks or bonds that have appreciated in value, there is no capital gains tax on the gift, and you get credit for both the principal amount and the gain.

 

How Your Tax Credit is Calculated

Your credit is a percentage of the amount donated based on your combined federal and provincial tax rate. For the 2017 tax year, these are the credits you would receive on a donation of $10,000, assuming a taxable income of $200,000.

 

Province or Territory

Tax Credit ($)

Alberta 4950.00
British Columbia 4322.72
Manitoba 4598.80
New Brunswick 4650.46
Newfoundland and Labrador 4682.80
Northwest Territories 4260.70
Nova Scotia 4947.58
Nunavut 4007.00
Ontario 3975.78
Prince Edward Island 4528.20
Quebec 5264.00
Saskatchewan 4339.00
Yukon 4139.20
Outside Canada 2872.00

You can get a credit for donations up to 75% of your net income. In the year of death (and going back one year), the limit is 100% of net income.

 

TIP: You can instantly determine your tax credit using the CRA’s charitable donation tax credit calculator. Just visit the ‘Giving to charity: Information for donors’ section at canada.ca

 

Personal or Corporate Donation?

If your personal tax rate is in the 45% range, you might think it’s better to base your tax credit on this percentage rather than on the small business rates which are much lower. But if you make a personal donation, you’ll pay tax on the additional salary or dividend you take out of your practice, so it typically evens out.

 

TIP: You do not have to claim all of the donations you made this year on your current return. A lower credit applies to the first $200 of donations and it may be beneficial to carry donations forward and combine them on your tax return in a future year to maximize the tax credit. Donations may be carried forward up to five years.

 

Long Term Giving

Some dentists become more personally involved in their giving to increase their sense of fulfilment, or to involve their family. There are three options to consider, with increasing degrees of complexity and donor control. You get the same tax benefit no matter which route is chosen.

Join a Giving Circle

You can put your charitable contributions in a pooled fund with other donors and decide as a group which charities to support. You may choose an area of focus such as the environment, education or the arts, and you’ll be expected to research opportunities and make group decisions.

Give through a Public Foundation

This gives you the ability to leave a lasting legacy without having to do the due diligence in researching opportunities. You can provide a permanent endowment in your, or a family member’s name, while avoiding the need to manage it directly.

Create a Private Foundation

This allows you to be more personally engaged with the process of giving and with the recipients. There are start-up and administrative costs, and you will need professional assistance. People who choose this route often involve family members to assist with the ongoing operation of the foundation.

 

TIP: If you would like to learn more, there is an excellent publication called Starting a Foundation, A Guide for Philanthropists at www.pfc.ca

 

Donating as Part of Your Estate

Including charitable donations in your will can provide a tax credit that offsets taxes otherwise payable on the distribution of your estate. Bequests often consist of cash, real property and/or securities like stocks, bonds and mutual or segregated funds.

Another option is to buy a permanent life insurance policy with a charity named as the owner and beneficiary. This provides the following advantages:

  • The annual insurance premiums can be considered annual charitable giving, so that you get the tax benefit each year.
  • On your passing, the insurance policy bypasses the estate, and is paid directly to the charity.
  • Since they’re not part of your estate, proceeds avoid probate fees.

 

TIP: If you transfer ownership of a paid-up policy with a charity named as the beneficiary, you will receive a tax receipt for the fair market value. However, there may be an income inclusion on the disposition of the life insurance policy if the proceeds of disposition exceed the adjusted cost basis of the policy.

 

Incorporating Donations into Your Financial Plan

As with anything to do with your finances, it’s best to proceed with a plan. We can work with you to create a financial plan that incorporates your charitable donations. Please call 1.800.561.9401 or send an email to investment@cdspi.com to arrange a complimentary consultation with an Investment Planning Advisor.

We can also work with your accountant to develop a tax-efficient strategy that integrates your charitable intentions into your financial plan.

 

* The World Giving Index is an annual report commissioned by the Charities Aid Foundation.

The information in this article was reviewed by MNP, a leading national accounting, tax and business consulting firm in Canada. a leading national accounting, tax and business consulting firm in Canada.accounting, tax and business consulting firm in Canada.

The information in this article outlines several strategies, not all of which will apply to your particular financial situation and should not be considered tax advice. While the content has been obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed.  You should consult a professional tax advisor to obtain advice about your individual situation.  None of CDSPI, CDSPI Advisory Services Inc., MNP or any other person accepts any liability arising out of any use of such information.