Tax and Protection
'Tis the season for charitable giving
By Michelle Seymour, CPA, CA, CFP® 28 November 2023 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 or closer to home. 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 2023 tax year. For Alberta resident individuals, the combined federal and provincial charitable donation tax credits will generally represent 75% 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 $235,675 for 2023).
Let’s see what that looks like in two different scenarios:
Alana
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 * 75% + $90 * 50% = $195
The value of Alana’s donation tax credit will cover the cost of nearly ten monthly donations, at her current giving level of $20 per month.
A breakdown of of how the charitable donation tax credit is calculated for someone in an income level below the top federal marginal tax bracket who has made monthly dontations of $20 to a foundation with the addition of a one-time gift of $50 to the same foundation.
Ted and Donna
Ted and Donna have decided to make a contribution to MindFuel this holiday season in the amount of $5,000. Their annual income levels are $170,000 and $250,000 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 2023 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 * 75% + $4,800 * 54% = $2,742
The after-tax cost of Ted and Donna’s $5,000 gift is $2,258 as a result of the tax credit.
A breakdown of how the charitiable donation tax credit is calculated in a scenario in which a couple has one person who earns an annual income level in the top federal marginal tax bracket
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.
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