Your professional career has given you some financial latitude and you would like to do more now for the organizations and causes that you care deeply about? There are many ways to express your generosity, and with the tax rules in place, it’s easier than ever to give while taking advantage of the tax savings available to you.
A tax credit that makes big difference
To encourage Quebecers to donate to charitable organizations, the federal and provincial governments offer non-refundable tax credits that vary according to the size of the donation.
| Donation amount | % tax credit | Combined rate (taking into account the Quebec abatement) |
|---|---|---|
| First $200 | 20% provincial 15% federal |
32.52% |
| Excess | 24% provincial 29% federal |
48.22% * |
* For taxpayers with personal income over $200,000, the tax credit increases from 48.22% to 51.56%.
Here is an example of the tax credit for a $10,000 donation in Quebec, assuming taxable income of less than $200,000.
| Donation | Tax credit |
|---|---|
| $10,000 | 32.52% X $200 = $65.04 48.22% X $9,800 = $4,725.56 TOTAL = $4,790.60 |
In this example, a $10,000 donation is made to the organization, but for the donor, the net cost is $5,209.40. Of course, the purpose of the tax credit is not to enrich the donor, but it’s a good incentive for those who want to give what they can.
IMPORTANT !
- The rule limiting donations to 75% of an individual’s net income has been abolished by the Quebec government. However, this rule is still in effect at the federal level. So practically speaking, you still cannot exceed this percentage.
- The tax credit can be carried forward over a period of five years and it is transferable between spouses.
- Only donations to registered organizations are eligible for this credit. To consult the list of charitable organizations published by the Canada Revenue Agency (CRA), clic here.
Make tax-efficient donations of securities
Monetary donations are not the only way to support the organization of your choice. You can also donate other assets such as furniture, buildings, works of art or securities. Assuming you wish to donate securities, let’s look at the net cost of your donation according to several scenarios.
| Assumptions | |
|---|---|
| Fair market value of the securities | $10,000 |
| Adjusted cost base | $4,000 |
| Capital gain | $6,000 |
| Marginal tax rate | 49.97%* |
* Taxpayer earning less than $200,000
SCENARIO 1
You sell your securities and donate the cash proceeds of $10,000 as an individual.
- Taking into account the capital gain you realize and the tax credit granted, the net cost of your donation is $6,677.
SCENARIO 2
You assign your securities as an individual.
- Since you do not realize a taxable capital gain, the net cost of your donation is $4,822.
SCENARIO 3
You are incorporated and your corporation assigns the securities.
- Since the donation is made by a corporation, it is tax deductible and the capital gain is not taxable. Furthermore, you are eligible for an additional tax savings in your capital dividend account, so the net cost of your donation is $1,200.
Good planning will make your donations go further
It’s important to know that by planning your donations and by taking advantage of the tax rules in place, the tax savings achieved could considerably reduce the real cost of your donations and give you more latitude to increase them.
A planned gift during your lifetime or upon death, a gift of life insurance, a testamentary trust and a subsidiary or residual legacy are other ways to tangibly express your desire to pay it forward.
To help you structure your philanthropic endeavour as part of a financial, tax or estate plan tailored to your situation, place your trust in one of our advisors.
