by Sheila Henn, Paterson Henn CPA –
Whether giving to a local charity, the Alberta Wildfire Relief or to many worthwhile causes, receiving a tax credit continues to be an incentive to give cash or other gifts to charities. Charitable organizations need donations to operate and tax savings may not be the only reason to donate, however here are a few tips to make the most of your donation:
• Know your charity: Not-for-profit organizations may need your support, but unless they are a “registered” or qualified donee, a donation receipt cannot be issued and claimed as a donation tax credit. I would always recommend researching the charity online. Watch for scams or individuals using a charity’s name. Canada Revenue Agency (CRA) provides a listing and information at www.cra.gc.ca/donors.
• Obtain donation receipts. CRA has strict rules for donation receipts and pledge forms and emails are not sufficient. Online receipts can often be received immediately. Donations are claimed based on the calendar year and can be used for up to five years. Receipts must follow CRA guidelines including having their registration number on them.
• Donate more than $200. The tax credit is greater on amounts over $200, so by combining your receipts for the year (or previous five years), claiming with your spouse/common-law, and by donating prior to December 31, you may save more taxes. Keep in mind the amount does not reduce your income but reduces taxes by a percentage based on the tax credit. If you attend a fundraiser dinner or receive a gift in return, the claimable amount will be reduced. Finally, if donating to a U.S. charity, this can be claimed only against U.S. income.
• Consider alternatives to cash donations. Your volunteer hours are invaluable but do not provide a tax savings nor would smaller items given. Donations of gifts-in-kind can still be an alternative that benefits both you and your charity. Artwork or other items may provide a significant donation receipt. Gifts of publicly-traded stocks, ecological land and making a charity the beneficiary of a life insurance policy or registered plan are other options available.
• Plan for the future. Making a bequest in your will can be a means of reducing taxes paid within your estate and providing to a charity for their future. New rules begin in 2016 allowing more flexibility for donations within an estate and trust but some new rules may also create challenges. Discussing and updating your plans with your professional advisors is recommended.
Donors and their contributions are necessary to these organizations. Through general understanding and tax planning you can reduce taxes while giving back to your community.
For more information visit www.patersonhenn.com.
