Donations Tax Credit Goes Further for Fort Mac

Helping in helplessness . . . watching the heartbreaking devastation in Fort McMurray has been gut-wrenching. How one hour can change life so dramatically! Making donations from afar seems only right; and it feels especially good, given how terrible the events of the last week have been.

It is a good time to review the charitable donations tax credit, too, because giving more can really help on your taxes this year. Your gift will give back to you, too.  There are three key things to know:

First, the donation credit is non-refundable and reduces taxes payable. The 2015 amount was calculated on Schedule 9 of the T1 return as follows:

• The first $200 of total gifts is eligible for a credit at the rate equal to the lowest federal tax bracket (15%).
• The remainder of the gifts is eligible for a credit at the federal tax rate for the highest tax bracket for the year (29%).
• When provincial taxes are factored in, charitable donations over $200 often return close to 50% of amounts donated.

Those rules are largely in place in 2016, but with one exception: With the introduction of a new 33% rate bracket, the credit for charitable donations will increase to 33% for incomes over $200,000.

Here’s how it works: If a taxpayer’s taxable income exceeds $200,000 and is therefore subject to the 33% rate, that rate will be applied to the lesser of the amount of the donations over $200 and the taxpayer’s taxable income over $200,000.

Finally, first-time donors can get an extra 25% credit for cash donations up to $1,000, but only until 2017. Here’s how that works for someone with an income over $200,000:

William is a first-time donor.  He has taxable income of $205,000 and he makes a charitable donation of $10,000 cash.  His credit is

• 15% of the first $200 plus
• 33% of the lesser of the gift over $200 (that’s $9,800) and his taxable income over $200,000 (that’s $5,000) plus
• 29% of the remainder (that’s $10,000 - $200 – $5,000 = $4,800) plus
• 25% of the first $1,000. 

His total federal credit for 2016 is $200 x 15% + $5,000 x 33% + $4,800 x 29% + $1,000 x 25% = $30 + $1,620 + $1,392 + $250 = $3,322.

Remember that your allowable claim for the regular donation credit is calculated as follows, based on your qualified gifts which can include cash, publicly traded securities and mutual funds, life insurance policies, personal use property, capital property, depreciable assets, cultural and ecological gifts:

Your donations limit is:

• the least of
  • the individual’s total charitable gifts
  • if the individual died in the year or the following year, the individual’s net income for the year, otherwise the sum of
  • 75% of the individual’s net income for the year
    • plus 25% of
      • taxable capital gains on gifts
      • reserves from the prior year on gifts of non-qualifying securities
      • recapture on gifts of depreciable property
      • lesser of net proceeds from gifted depreciable property and the capital cost of that property
    • minus capital gains deduction claimed on gifted property
• the individual’s total Crown gifts
• the individual’s total cultural gifts
• the individual’s total ecological gifts

Cultural gifts are gifts of objects that the Canadian Cultural Property Export Review Board has determined meet the criteria set out in the Cultural Property Export and Import Act.

Ecological gifts are gifts of land that is certified by the Minister to be ecologically sensitive land, the preservation of which is important to the preservation of Canada’s ecological heritage. Such gifts must be made to Canada, a province, a municipality, or a registered charity whose main purpose is the preservation of Canada’s environmental heritage. The taxation of the capital gains on such gifts is completely eliminated.

If you are unable to claim all of your donations, you may carry forward the unclaimed amounts for up to five years.

My choice in helping the folks in Fort McMurray was to give some money to the Red Cross, as the federal government is matching that donation, and then to provide something for the humane societies that are helping the poor animals left behind. Our thoughts and prayers are with them all.

Evelyn Jacks is President of Knowledge Bureau, Canada’s leading educator in the tax and financial services, and author of 52 books on family tax preparation and planning.

Refer a Friend	Research	Calculators	Course Trials