Toronto-based Imagine Canada, which provides support for charitable organizations, predicts that about 60% of Canadian adults are expected to donate approximately $5billion this holiday season. According to Statistics Canada (StatsCan), Canadians give just less than $13 billion annually to charities and nonprofits, meaning that approximately 40% of all donations take place in the last six weeks of the year.
StatsCan identifies “compassion for those in need” as the top reason Canadians donate (89%), followed by “personally believe in a cause” (85%) and “contribute to our communities” (79%). Six-in-ten (61%) are motivated by being personally affected by the cause.
So, as you meet with clients during the last few weeks of 2015, it may be a good time to remind them of some important tips to minimize the after-tax cost of their donations.
> General rule: non-refundable tax credit
Individuals who make donations to registered charities are eligible for a federal non-refundable charitable donation tax credit of 15% on the first $200 of annual charitable donations. The federal credit rate jumps to 29% for cumulative donations above $200. When provincial credits are added to the federal credits, your clients’ total credit can be as high as 50% of the donation, depending on his or her province of residence.
Note that on Dec. 7, the federal government introduced a Notice of Ways and Means Motion that would amend the Charitable Donation Tax Credit to allow higher-income donors to claim a 33% tax credit on the portion of donations made from income that is subject to the new 33% marginal tax rate. This change will be effective for the 2016 and subsequent taxation years.
> First-time donors
“First-time donors” can also take advantage of the temporary First-Time Donor’s Super Credit, which provides an additional 25% non-refundable tax credit on up to $1,000 of donations.
An individual qualifies as a first-time donor if neither the individual nor his or her spouse or common-law partner has claimed the charitable donation tax credit after 2007. The credit will apply only to cash donations made after March 20, 2013. It’s a temporary credit and it can only be claimed once from the 2013 to 2017 taxation years.
Although your clients are unlikely to be first-time donors, they may have children or grandchildren who are filing tax returns for the first time in 2015 and, thus, may qualify, as they have never claimed a donation previously.
> Donations “in-kind”
Since 2006, donations of publicly traded shares, mutual funds or segregated funds to a registered charity not only get your clients a tax receipt equal to the fair market value of the securities or funds being donated, but these clients can also avoid paying capital gains taxes on any accrued gain on the shares or funds donated.
Similarly, if your client is an employee who has received stock options, he or she can avoid paying taxes on the stock option benefit by choosing to donate the proceeds of an option exercised to charity within 30 days of exercise.
The 2015 federal budget proposes to exempt capital gains arising from the sale of private corporation shares and real estate from taxation if the cash proceeds from the sale are donated to a qualified charity within 30 days. This new rule would only apply, however, for donations made in 2017 and later taxation years.