The Tax Benefits of Charitable Giving

As we approach the holiday season, the spirit of giving is in the air. While Canadians value the act of giving, many are unaware that there are significant tax benefits associated with their charitable contributions.

In this post, we’ll explore the tax advantages and provide three valuable tips to help you make the most of your donations.

The Credits

• Federal: 15% credit on the first $200; 29% credit on donations above $200.
• Provincial: Additional credits apply (e.g., in Ontario, 5.05% on the first $200 and 11.16% on the rest).
• Carry-Forward: You can claim donations in the current year or carry them forward for up to 5 years.

3 Tips for Maximizing Impact

1. Pool Donations

Spouses should pool donations on one tax return. This allows the higher-income earner to utilize the credits against higher tax brackets, maximizing the household refund.

2. Donate Investments, Not Just Cash

One of the most tax-effective ways to contribute is by gifting stocks or mutual funds directly (in-kind).

• Benefit: You eliminate the capital gains tax you would have paid if you sold the stock first.
• Benefit: You still get a tax receipt for the full market value.

3. Explore Life Insurance

Consider making a charity the beneficiary of a life insurance policy. The charity receives a significant windfall, and your estate receives a massive tax receipt to offset final estate taxes.