With the year coming to an end, and planning for 2018 well under way, it’s time to be thinking about tax season coming up – you may even be considering charitable donations. It’s important to first determine what you can afford to give and then you can begin thinking what kind of donations you want to make! There is even the opportunity to consider alternatives to making the usual cash donation, such as gifts of property known alternatively as “gifts in kind” – they can include securities, artwork, real estate, even life insurance…
It is important to keep the following points in mind when considering your charitable donations:
- You will get a 15% federal tax credit for the first $200 you donate for 2017
- If you have income over $202,800, you may receive a 33% federal tax credit for your donations over $200; if your income is under $202,800, you will receive a 29% federal tax credit for donations above $200
- Provincial tax credits may boost your total combined charitable donation tax credits up to 54% if you have income over $202,800 and up to 50% if your income is under $202,800
- Donating securities instead of cash may increase the benefits of the donation for you and the charity
- Gifts of life insurance can finance a sizable donation with a relatively small cash outlay, depending on the level of your premiums.
There are different ways that you can structure your charitable donations to allow you to make the most out of the incentives that are made available to you. You should consider:
- Gifts in Kind:
- Donations of property other than cash are called “gifts in kind.” To determine the tax credit for your donation, a gift in kind is generally valued at its fair market value at the time you make the gift.
- There are special incentives to encourage gifts of “certified cultural property” and donations of ecologically sensitive lands to the federal government, a province, territory or a municipality, or certain charities.
- If you choose to donate property such as artwork, shares or real estate, you can make an election to designate a value for the gift anywhere between its cost to you and its fair market value to avoid triggering a capital gain or to trigger a smaller one.
- Donations of Cash versus Securities:
- You are able to make charitable donations in 2017 from eligible securities, it is however recommended that you donate the securities as the net tax savings resulting from your donation in kind will be more than if you sold the securities and donated the before-tax proceeds.
- Charitable Bequests and Legacies:
- The new tax rules set January 1, 2016 provides greater flexibility to use the tax credit for donations as well as gifts by direct designation, such as via RRSP or life insurance proceeds.
- These rules allow a donation to be allocated between the deceased and his or her estate for purposes of the charitable donation tax credit, as long as the donation is made by a qualifying estate, known as a “graduated rate estate”.
- This also continues to provide an exemption from capital gains taxation on gifts of publicly traded securities, as long as the gift is made by a qualifying estate.
- Gifts of Life Insurance:
- For tax purposes, the value of your donation is generally the policy’s fair market value, minus any policy loan outstanding.
- After you’ve donated the policy to your charity of choice and continue to pay the premiums, rather than having the charity pay them, each payment will be considered an additional charitable donation entitling you to more tax credits.
- Donations from Corporations:
- Corporations can deduct donations made by determining taxable income, within specified limits.
- Make sure you compare the rates of donating personally versus through your corporation to optimize your tax credit.
- First Time Donor’s:
- This is the last year that first time donor’s are eligible for a “super credit” which supplements the value of the charitable donation’s tax credit by 25%.
Also, if your donations add up to more than 75% of your total net income, you can carry forward the excess amount and claim it any time in the following five years! Neat!
Your charitable donations should be made by December 31, 2017 if you wish to be able to claim the donation credit on your 2017 tax return! As always when it comes to your money: proceed with caution. Consult your accountant or wealth adviser to find out what is best for you!