How to get the most tax benefit from your charitable donations
Give the gift of support (while lowering your taxes)
Charitable donations represent one of the few instances when it's OK to expect something in return for a gift. You get to be generous but also financially savvy, because giving can lead to tax credits that can boost your bottom line.
"We can’t forget that we live in a community that supports us and our families," says JR Shaw School of Business instructor Stacey Cooper. "It’s important to give back by donating."
But it's also important, she points out, to be smart about giving back. Here are her tips on ensuring your donation goes to a worthy cause, and that the cause reciprocates as it should. After that, it's just a matter of properly following through on your tax return.
Make sure the charity is legit
“Whenever you make a donation, make sure [it’s to] an actual registered charity that can issue you a receipt.” Every bona fide charity is listed by Canada Revenue Agency and given a charitable registration number. If it doesn’t have that, it can’t issue you a receipt for your tax return. It may even be fraudulent.
There’s no minimum limit for issuing a receipt, says Cooper, but most charities won’t give one for less than $20.
Don't expect more than what you're paying for
Other than whatever you're buying, don't expect anything in exchange if you're purchasing an item to support a cause, Cooper says. That means if you’ve paid for something like a calendar or chocolates, you won't get a receipt that can be put toward your tax return.
If you’ve paid for something, you won't get a receipt for your tax return.
That said, in some instances, a portion of what you give may be eligible for a tax credit. For example, says Cooper, “If you buy a ticket to a charity dinner for $500 and the actual cost of the meal is $100, you would be issued a receipt for the $400 excess.”
Track your donations
Donations you want to claim on your tax return must have been made in previous calendar years (they can be carried forward up to five years). Keep in mind that charitable organizations may take up to a few weeks to issue a tax receipt. If you make your donation late in December, you might not receive your documentation until early in the new year. Best practice, says Cooper, is to “keep track of it for your own purposes.”
Maximize the credit
If your donations in one year don't add up to more than $200, consider deferring them. A better tax credit makes it worth the wait.
The Alberta government grants a credit of 10% on the first $200 of a donation; after that, it bumps up to 21% (for a total of no more than of 75% of your income). For example, donate $500 and you’ll get $20 back on the first $200 and $63 on the remaining $300, for a total credit of $83.
The federal government kicks in as well. On that same $500, expect 15% back on the first $200 and 29% on everything thereafter (also with a limit of 75% of your income). This will bring the total, after both levels of credits, to $200.
If you're a first-time donor, you qualify for an extra 25%.
If you're a first-time donor, you qualify for an extra 25% on cash gifts under and over that $200 threshold.
Within families, the payback can get even better. “Maximize your donations by claiming all of them on a single taxpayer,” says Cooper. Make the most of your credits by bundling all the donations onto the return of the higher earner, which will help reduce the amount of income taxed at higher brackets.
“You’ll get more of the tax credit and more money back in your pocket.”