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'Tis the season for charitable giving
By Michelle Seymour, CPA, CA, CFP® 24 November 2021 3 min read
Giving is often top of mind as we head into the holiday season. This may include finding the perfect gift for a loved one or giving your time to help out a friend or neighbour. Many individuals and businesses will also donate to charities that are important to them, with charities typically seeing an increase in donations at this time of year.
There are a variety of reasons why people decide to make a charitable donation. Perhaps a charity made a significant impact in your life or in the life of someone close to you. For others, there may be a desire to help a charity that is making a direct impact in the community where they live. Some will give in response to an emergency need, whether this is across the world, such as the crisis in Afghanistan, or closer to home, like the recent flooding in B.C. Supporting pandemic relief efforts also remains a priority for some donors as charities continue to see an increased need while coping with a decrease in donations. The reasons for charitable giving are plentiful and varied.
Tax advantages to charitable giving
Each area of your finances is inter-connected, and in the case of charitable giving, this means that a gift to a registered charity also reduces your tax bill.
If you’re considering making a charitable donation this season, there are a few things to keep in mind. Charitable donations must be made by Dec. 31 in order to be eligible to receive a tax credit for the 2021 tax year. For Alberta resident individuals, the combined federal and provincial charitable donation tax credits will generally represent 25% on the first $200 of donations in the year, and 50% on donations in excess of $200. This rate increases to 54% on donations in excess of $200 where a taxpayer has sufficient income in the top federal marginal tax bracket (income above $216,511 for 2021).
Let’s see what that looks like in two different scenarios:
Throughout the year, Alana has made monthly donations of $20 to the Mental Health Foundation. She decides to make an extra one-time gift of $50 in December. Her total charitable donations for the year are $290. Alana’s income level is below the top federal marginal tax bracket.
The charitable donation tax credit is calculated as follows:
$200 * 25% + $90 * 50% = $95
The value of Alana’s donation tax credit will cover the cost of nearly five monthly donations, at her current giving level of $20 per month.
Ted and Donna
Ted and Donna have decided to make a contribution to Calgary Reads this holiday season in the amount of $5,000. Their annual income levels are $170,000 and $230,000 respectively. As Donna is in the top federal marginal tax bracket, they will choose for Donna to claim the charitable donation tax credit when filing their 2021 personal income tax returns. This will maximize the tax credit available.
The value of Donna’s charitable donation tax credit is calculated as follows:
$200 * 25% + $4,800 * 54% = $2,642
The after-tax cost of Ted and Donna’s $5,000 gift is $2,358 as a result of the tax credit.
In both examples, we can see how these individuals provided gifts to registered charities while also receiving meaningful tax savings.
Other ways to donate
While a cash gift is the most common way to make a donation to a registered charity, there are many other strategies available that may be of interest to donors considering larger charitable gifts during their lifetime or as part of their estate planning. If you’re interested in learning more, please check out our guide to planned philanthropic giving, and it’s always a good idea to speak with your accountant or financial advisor about how to make the most of your charitable giving.
Whether your personal financial goals and priorities include donating to a charity close to your heart or saving for a long-term goal, a personalized financial plan can help you make sense of the big picture and accomplish your goals.
This document has been prepared by ATB Wealth. ATB Investment Management Inc., ATB Securities Inc. (Member Investment Industry Regulatory Organization of Canada and Canadian Investor Protection Fund) and ATB Insurance Advisors Inc. are wholly owned subsidiaries of ATB Financial and operate under the trade name ATB Wealth. The information provided in this article is a simplified general summary and is not intended to replace or serve as a substitute for professional advice. Professional tax advice should always be obtained when dealing with taxation issues as each individual’s situation is different. This information has been obtained from sources believed to be reliable but no representation or warranty, expressed or implied, is made as to their accuracy or completeness. This information is subject to change and ATB Securities Inc. (Member Investment Industry Regulatory Organization of Canada and Canadian Investor Protection Fund), ATB Investment Management Inc. and ATB Insurance Advisors Inc. reserves the right to change the information without prior notice, and does not undertake to provide updated information should a change occur. ATB Financial, ATB Investment Management Inc., ATB Securities Inc. and ATB Insurance Advisors Inc. do not accept any liability whatsoever for any losses arising from the use of this document or its contents.