If you are facing a tax bill in 2015, you may want to consider some giving to help lower your liability
It is the season of giving to others and many Canadians are getting into the spirit. According to the 2015 BMO Charitable Giving Poll, Canadians are planning to be generous this holiday season and continue their donating ways into 2016.
The average holiday donation is expected to be about $167. Donating to a favourite charity instead of giving gifts is becoming more and more popular. Many charities such as Plan Canada or World Vision actually have a catalog of "gifts" that are directed to areas of need. It is not every day you can give someone a goat or water sanitation.
The poll also showed Canadians are planning to donate nearly $700 to charities in the next year. The number of people planning to donate may be down slightly but the good news is the amount being donated is staying consistent.
There are a number of reasons to give money to charities and everyone has their own. And while it is secondary for most people, charitable donations also provide tax savings. Registered Canadian charities are allowed to issue receipts for donations so you can make a claim on your tax return.
Many charities are now issuing electronic receipts to reduce the amount of paperwork they have to handle. For example, if you supported someone's moustache efforts during Movember, you could opt to have your charitable donation receipt emailed to you. Though it makes life easy for a charity, it does mean you need to be organized when it comes to tracking your receipts. Each one means you pay less tax so hang onto them.
Charitable donations give you the most tax savings when you claim more than $200 at one time. You receive a 15 per cent federal credit for your first $200 in donations and then 29 per cent federally for every dollar over $200. So if you donate $500 in 2015, you get $117 in federal tax savings. And then you also need to factor in your provincial savings. If you are married or common-law, you can also combine your receipts to maximize your tax savings. Usually, the higher income earner should claim all or most of the donations.
Unlike other non-refundable credits, you are allowed to claim up to six years worth of charitable donations on one tax return. So if you do not break the $200 threshold for 2015, you may be better to hold onto your receipts until you file your 2016 tax return. This also means that if you find a receipt you missed from 2014 or earlier, you could add it to your pile for 2015.
The government did introduce the First Time Super Donor Tax Credit to try and encourage more Canadians to give. Available until 2017, the credit boosts the tax savings for a new or lapsed donor. If your donations total more than $200, it can produce a tax credit between 40 to 50 per cent depending on what province you live in.
The Canada Revenue Agency is cracking down on charitable giving tax schemes. For example, taxpayers have been told they could donate $1,000 to a charity and receive a tax receipt for more than the donation amount. There are a variety of reasons given for this increase. Sometimes it is marketed as more purchasing power in a third-world country.
Receiving a receipt for more than you donated is illegal. If you choose to participate in charitable scheme then the CRA will automatically review your return. If the donation results in a refund, the CRA will verify your return before you receive your refund. It will hold up the processing of your return for weeks. So make sure all of your receipts are valid.
If you are expecting to owe the government in 2015, you may want to consider making some charitable donations to help lower your tax payable. Donations made to registered charities by December 31 are eligible for your 2015 tax return. Even if you only have a few slips, make sure you keep them to claim in future years. It feels good to give but it also feels good to save a few extra dollars on your tax bill.
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