Last chance to cut tax bill while helping others
We’re turning into a nation of Grinches. That’s the conclusion of the Fraser Institute, a B.C.-based think-tank.
In a report published last year, the organization reported that charitable donations in this country had dropped to a 10-year low. (This year’s report will be published later this month, but is not expected to show much improvement.)
Not only that, but we only donate a small fraction of what Americans give to charity. Based on 2014 tax returns, the average American who claimed a deduction gave $5,807 (U.S.). The average Canadian gave only $1,618.
We’re the Scrooges of North America, and the federal government isn’t doing anything to encourage us to be more generous. Quite the opposite, in fact. Last spring’s budget did away with the so-called “super credit” that was introduced by the previous Conservative government in 2013 to encourage more people to dip into their pockets to aid the less fortunate.
If you want to take advantage of it, you have only a few weeks left. It disappears at midnight on Dec. 31.
This tax break was supposedly de- signed for first-time donors but in reality, it doesn’t have to be your first time. As long as you or your spouse/partner has not claimed a charitable donation in any year since 2007 and made a gift of money, you are eligible. The super credit adds 25 per cent to the value of the tax credit you get for the first $1,000 you give. That can add up to a generous reduction of your tax bill.
Here is an example. Let’s assume you send a cheque for $1,000 to your favourite charity.
The first $200 qualifies for a 15per-cent tax credit ($30) while the remaining $800 gets a 29-per-cent credit ($232). That adds up to a total of $262.
Now add 25 per cent of the $1,000 you gave and your federal tax credit soars to $512. Provincial credits are on top of that.
Why is the government abolishing it? Technically, they’re not — they are just letting it expire. When the Harper government introduced the super credit, it had a sunset clause of five years. Parliament would have to pass a new law to extend it and the Liberals have chosen not to do so, saying that very few people use it.
So if you’re eligible, take advantage of it while you can. It’s a great way to knock down your tax bill while helping others.
Here’s another charitable tip that most people don’t know about. Amy Dietz-Graham, a portfolio manager and investment adviser at BMO Nesbitt Burns in Toronto, suggests making a contribution in kind using securities from nonregistered accounts that have large capital gains.
“Given the rise in the stock markets in recent years, a lot of people may own securities with very high embedded profits,” she says. “This is a way to avoid the capital gains tax and get a large tax credit was well.”
For example, suppose you own a stock that you bought for $10,000 and it is now worth $20,000 (not far-fetched these days). If you sold, you would have to pay tax on half your capital gain, which is $5,000. If your marginal rate is 50 per cent, you would owe the government $2,500.
Instead, you donate the stock to a charity. They’re quite used to this and will handle the paperwork. Your capital gains liability drops to zero and you receive a tax receipt for the entire $20,000. That translates into a federal tax credit of $5,772. The provincial credit is added to that.
The only limitation is that the maximum amount of all donations an individual can claim on his/her tax return each year is 75 per cent of net income.
“December is a very busy month and people have a lot on their minds,” Dietz-Graham said. To help you keep track from a financial perspective, she has prepared this calendar:
Dec. 15 — Year-end tax instalments due.
Dec. 27 — Last day for tax-loss selling
Dec. 31— Last day for RRSP contributions and for RRIF conversions for those who turned 71 this year
Dec. 31— Last day for charitable donations.
She also suggests that if you are planning to make a withdrawal from your tax-free savings account any time soon, do it this month. That way, you can recontribute the amount in 2018 if you wish. If you delay until January, you will have to wait until 2019 to put the money back. Gordon Pape is editor and publisher of the internet Wealth Builder and Income Investor newsletters. His website is BuildingWealth.ca.