What are the Tax Implications of Charitable Giving?
January 21, 2022
According to Statistics Canada, Canadians contribute billions of dollars to charity every year, more recently $10.3 billion in 2019. Most people don't seem to be motivated by tax incentives to donate to a good cause.
There is, however, no disadvantage to claiming charity tax credits when filing your income tax return: it is simple and beneficial. It doesn't cost you anything, and in fact, these credits can be re-invested to support your favorite charity.
When you consolidate your donation invoices during tax season, you'll receive charitable tax credits that you can utilize to lower your federal and provincial income taxes. Other advantages can add up to big savings:
First-time donors are offered a bonus credit making it more attractive to donate if they haven't already.
If you and your spouse have the same bank account, it's easier to declare all of your
donations on one tax return. To get the credit at the lowest tax rate, you can donate up to $200. The credit is applied at a higher rate for donations over $200.
If you don't have any income or owe any taxes, you won't be eligible to claim the tax credit. You can, however, carry it forward for a maximum of five years.
Can I Donate Shares To Avoid Capital Gains?
Donating shares you have purchased might potentially save you money on taxes. You're generally taxed at the capital gains rate when you sell shares. For example, if you bought stock for $150 and sold it for $170, you have a $20 capital gain and must pay tax on half of it, or $10.
If you donate securities, you will receive a donation receipt of your gift's total market price (or the resale value). Your donation will result in a non-refundable tax credit, which can reduce the taxes you must pay. This non-refundable tax credit can be used in the year you donated your securities and can be cashed in for up to five years.
Plus, you do not have to pay capital gains tax on the rise in the value of your securities.
When Is It Appropriate To Give Securities As A Gift?
This tax benefit is only available if you donate shares with an accrued capital gain. If the value of your shares has not improved since you bought them, donating them to a charity will not save you any capital gains tax. You will still receive a charitable contribution receipt for the value of the stock, but it will be treated the same as if you were donating cash.
Is It Possible for Me to Receive Charity Tax Credits for Any Charitable Contribution?
No, not all donations qualify for charity tax credits in Canada. However, you can keep the below-mentioned things in mind in order to receive tax credits for your charitable contribution.
1. Charitable tax credits are only available to donations made to a "qualified donee." A qualified donee is usually, but not always, a charity organization or nonprofit organization registered with the Canada Revenue Agency (CRA). The Government of Canada keeps track of the many sorts of organizations it recognizes as qualified donees.
2. You are entitled to charity tax credits only if you receive an official donation receipt from a qualifying donee. Although the organization should provide you with this receipt electronically, it is your responsibility to ensure that you have received it.
What Is The Best Way To Acquire A List Of My Charitable Contributions?
Each charity organization may send you a tax receipt for your total gifts for the tax year before the income tax due date. Take note that since charitable contributions are at the top of the list for post-assessment requests, the CRA may ask for confirmation of the gifts. A tax receipt will be required from you. The CRA will not accept a photocopy of your actual bill of payment.
If you donate to charities through your company or retirement plan, check your income tax slips, T4, T4A, T3, T5013 slips, or partnership financial information.
It's incredibly noble to think of people other than yourself, and contributing to charity is one of the finest ways to give back to the community. Many people are still under the belief that cash as charitable contributions is the best way to alleviate the crises of the community. However, well-thought-out charitable donations such as those of stocks and securities can benefit both the donor and the donee.
If you are looking for some tailored financial advice to see how you can give securities as donations, you can connect with a Bellwether family wealth advisor today and watch how the gift of giving benefits you too.
Here at Bellwether, we can help you make the right choices about charitable giving. Book an investment portfolio review today, free of charge, or speak to our team to learn more.
You can also reach out for a full PDF white paper with detailed charitable giving strategies.