The charitable donation receipts you’ve been gathering all year may be worth more than you realize.
Your generous contributions can go a long way in reducing your taxes. Here are some facts you should know:
- You only get a 15% tax credit for your first $200 of donations, but 29% for everything over that. Therefore, instead of claiming your donations every year, it may be more beneficial to save them over a period of years and claim them all at the same time. That way, the reduced rate for donations under $200 is applied only once. The donations you made in 2008 can be claimed any year up to 2014.
- The reduced rate for donations under $200 applies both to donations claimed on your return and donations claimed on your spouse or common-law partner's return. So, instead of each of you claiming your own donations, you should claim them all on one return.
- If you want to make sure you get the charitable donation tax credit, restrict your donations to registered Canadians charities. As a general rule, you can only claim donations to US charities if you are reporting US income on your tax return. And you cannot claim donations in excess of 75% of your US income. Donations to charitable organizations in other countries usually cannot be claimed at all (although there are exceptions for certain universities and colleges, both in the US and elsewhere).
- If you make a donation of capital property, you will get a charitable donation tax credit based on its FMV at that time. However, you will also be taxed on the capital gain if the property has appreciated in value since you acquired it. A special rule allows you to choose an amount lower than the FMV (but not lower than the cost) for the deemed proceeds if you also use this amount for the purpose of the charitable donation tax credit. However, since only 50% of capital gains are included in income and the tax credit for charitable donations in excess of $200 is 29%, this is not usually beneficial.
- If you make a donation of certain types of publicly traded securities (such as stocks, bonds and mutual funds), the capital gains inclusion rate is reduced to zero. So, if you are planning on making a gift, check whether it would be feasible to give securities instead of cash. Not only will you get a charitable donation tax credit based on the FMV of the securities, but your accrued capital gain on the securities will not be taxed.
- Avoid schemes that invite you to purchase property at a discount and immediately donate it to a charity for its FMV, thereby giving you a tax credit that is more than what you paid for the property. The government legislation of December 5, 2003, effectively kills these schemes by limiting the value of a property to its cost amount if it is donated within three years of it being acquired.
