Charitable Giving
December 2010
It is truly better to give than to receive but charitable donations allow you to do both. Consider topping up your giving before December 31 to reduce your tax bill for 2010.
Qualified donations will save you tax dollars while benefiting the charities of your choice. But when it comes to taxes a little planning is always in order.
- Check the list
Only charities registered with Canada Revenue Agency (CRA) may issue tax receipts for donations in Canada. You may confirm a charity's status by visiting the Charities Listing on the Canada Revenue Agency (CRA) website: (www.cra-arc.gc.ca/chrts-gvng/lstngs/menu-eng.html). This list also provides important information on a charity's finances, activities, and tax filings. - Obtain an official receipt
Be sure to obtain an official tax receipt; it must include your name, date, donation amount, receipt number and charity registration number. Many charities provide an immediate "temporary" receipt with the official one to follow at year-end so be sure to keep track and follow up missing receipts. Keep your receipts in case CRA asks to see them. If you paper-file your return you must attach them. - Don't be scammed!
CRA frequently warns taxpayers about tax shelter "gifting arrangements," in which a taxpayer makes an investment and receives a charitable donation receipt for a greater value than the donated cash or property. Be aware of the risks of participating in these arrangements. CRA has said it will audit all those involved in these schemes—the promoters, the registered charities, and the participants. - Maximize your tax credit
Qualified donations in excess of $200 will offset your taxes at the highest rate of tax: 46% or $46 for every $100 donated. So aim to exceed the $200 threshold. Married or common-law spouses may pool their donations and claim them on a single tax return. You can also carry forward unclaimed donations for up to five years allowing you to accumulate credits. Both these tactics will maximize the portion eligible for the top rate of credit. In general, donations may not exceed 75% of a taxpayer's net income for the year they are claimed. - Consider non-cash donations
Donations of new furniture, equipment, art and other items (but not services) may be accepted for credit by many charities. The charity may need an appraisal and will issue a receipt describing the item and listing its value. You may have to report the disposition of the item at the appraised value and can claim a donation for up to this amount. We can assist you with this. There are further rules for donations of certain property such as cultural or ecological gifts and artists' inventory. See the CRA publication P-113-Gifts and Income Tax http://www.cra-arc.gc.ca/E/pub/tg/p113/p113-e.html or ask us for further information. - Stock up on savings
Contributions of publicly-listed shares reap an added benefit. They qualify as a donation for the amount of their market value on the date they are transferred to the charity. Plus, any gain arising on their disposition is considered zero for tax purposes so no tax is triggered. This makes it a highly attractive option so don't miss this opportunity for 2010: arrange the stock transfer by December 23 to ensure it settles by year-end. - Eliminate your employee stock option taxable benefit
Did you know you can claim an additional deduction for donating publicly-listed shares of corporations you acquired through your employer's stock option plan? A few conditions apply. First, you must be entitled to the usual stock option deduction of 50% of the employment benefit arising on the exercise of the option. Second, you must donate the option shares within 30 days of their acquisition (and within the same tax year) to a registered charity. If these conditions are met, an additional deduction for the remaining 50% of the employment benefit is allowed in addition to the donation credit. This eliminates tax on the entire employment benefit associated with the exercise of your stock options. Any capital gain on the donation of the option shares will be considered zero for tax purposes as described above. You may also arrange for your employer to immediately dispose of your option shares and donate cash instead while reaping the same benefits. Time these transactions before year-end to ensure they count for 2010. - You can't take it with you
Charitable donations can be stipulated in your will; they would be made by your Executor and claimed on your final personal return and the prior year's return if necessary. Donations in this case may equal 100% of net income for the final and prior year. If you have a substantial estate you may wish to consider benefiting several charities of your choice through a charitable remainder trust. Speak to us for further details.
Canadians are among the world's most generous donors; CRA has encouraged this philanthropy with generous tax incentives. Make use of them today!
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