How much did you hand over to the taxman on April 30? Well here’s a simple tip: the more you give to charity, the less you give to Canada Revenue Agency.
In fact, tax incentives for charitable giving in Canada are among the most generous in the world. Most accountants would argue that making a charitable donation is the simplest and most effective way to lower your tax bill.
The bad news is that most people have no idea how much tax money they could save each year by giving. We also know precious little about ‘planned giving’. Planned giving is leaving a bequest in your will to a charity. The good news is the federal government is looking at incentives to boost charitable giving in Canada, with a view to promote charitable giving. We all need a better understanding of the importance of charities. They give real value to our lives and our communities, be it senior care, medical or environmental – the list is endless.
Imagine if you could help benefit local charities – such as Neighbourhood Link or Toronto East General Hospital – and save tax dollars at the same time. (These are but two of the many worthy charities in our community).
A quick primer on Charity 101 looks something like this:
For gifts above $200, donors can generally expect to save as much as 46 per cent. That’s pretty impressive. A $1,000 gift should save you (generally) about $464.
There is also the capital gains exemption when you donate your publicly traded shares to a charity.
For example, if you bought 1,000 shares of ABC Company in 2000 for $1,000 and today they are worth $10,000, you would have a capital gain of $9,000, which is brought into income and taxed at your applicable rate. However, if you donate the shares directly, that tax bill is forgiven by the taxman.
So why leave your estate with a big tax bill when it can be reduced significantly by planned giving? For example, if you leave a $500,000 RRSP or RRIF, all that income is collapsed in the year of death. At an average 46 per cent tax rate, $270,000 would go to the estate, and a whopping $230,000 in taxes. Now imagine if you had designated some of that to a charity. Your savings could be planned in advance to offset any impending tax liabilities that will eat into your estate.
Lowering your tax bill is always a good idea, but charitable giving is about being idealistic and hopeful in nature. It is one small way to make the world a better place. A little-known boost in the March 2013 federal budget was the First-Time Donor’s Super Credit. If you, your spouse or partner have not made a charitable donation since 2007, you will receive an extra 25 per cent tax credit on top of the federal and provincial rates. It will last to 2017. The idea is get to new donors in the market and habit of charitable giving.
The internet has been a huge force in global giving. It is changing the face of strategic giving around the planet. Today we find local charities in the Beach, for example, receiving donations from different parts of the world, empowered by technology and strategic giving. Bill Gates and Warren Buffet have formed The Giving Pledge which has attracted wealthy individuals around the world to pledge away their wealth. So charitable giving is in.
But giving is primarily about you. It defines your values, your social causes and to a great extent, your legacy in life. Not only is giving strategic when it comes to saving tax money, it is strategic in how you benefit and help. It is immensely personal, generally thoughtful and self-defining.
The other great way to give is by donating the greatest commodity of all: your time. Statistics tell us that fewer than 25 per cent of us spend three hours a week as volunteers. Many of the organizations in our community could truly use more energy and volunteer time. Caring about an issue is important. Donating to help is a wonderful way to assist, and donating your time is one of the best ways to gain personal satisfaction.
So for those of you who just wrote a nice fat cheque to the taxman this past April 30, you now have lots of time to do some strategic planning and soul searching to both help your favourite charities (and don’t forget your local charities that give so much to the quality of life in our community) and lower your tax bill for 2014.