Posted on November 11, 2008 13:04 by
Sam Li
I know it’s probably a little bit too early to talk about taxes yet but since I’m a person who plans ahead for me it is good time. Do you do donations? I do and since I do I have strategy in place to maximize my tax credit.
How it works
When you donate you get tax credits from both from federal government as well from your provincial government. Basically it breaks into two portions first $200 and the rest, this is the same for both federal and provincial.
Here is the structure:
| |
Credit rate on first $200 |
Credit rate on the remainder |
| Federal |
15.00
|
29.00
|
|
Alberta
|
10.00
|
21.00
|
|
British Columbia
|
5.24
|
14.70
|
|
Saskatoon
|
11.00
|
15.00
|
|
Manitoba
|
10.90
|
17.40
|
|
Ontario
|
6.05
|
11.16
|
|
New Brunswick
|
10.12
|
17.95
|
|
Nova Scotia
|
8.79
|
17.50
|
|
Prince Edward Island
|
9.80
|
16.70
|
|
New Foundland
|
8.20
|
16.00
|
|
Table 1
|
Let say you donate $400 and you live in Ontario, you get two portions in it $200 and second $200. Here is the tax credit you get:
|
Provincial:
|
|
| $200 x 6.05% = |
$ 12.10 |
| $200 x 11.16% = |
$ 22.32 |
| Federal: |
|
| $200 x 15.00% = |
$ 30.00 |
| $200 x 29.00% = |
$ 58.00 |
| Total credit |
$ 122.42 |
| Table 2 |
This information is correct according to 2007 tax year rates, yep that is correct these rates are changing every year. This Information is posted every year on T3 form for provincial taxes and T1 for federal taxes. Also you can claim donation during 5 years and maximum cannot be over 75% of your net income.
Strategy
So, do you see the catch? If not let me elaborate on this a little. From Table 2 you can see that you get the least credit on the first $200 dollars and it make sense to donate at least $400. You don’t have to report your donations each year, remember you have 5 years right to hold on them.
What do you do? Here is a scenario:
Year 2005 – I donated $190 -> I do not report this donation
Year 2006 – I donated $200 -> I do not report this donation
Year 2007 – I donated $250 -> I do not report this donation
Year 2008 – I donated $200 -> I report donations from year 2005, 2006, 2007, 2008
all together -> $190+$200+$250+$200=$840
Following this scenario I will get maximum or close to it Charitable Donation tax credit.
Here are some useful links on the subject:
Canada Revenue Agency - http://www.cra-arc.gc.ca/tx/chrts/dnrs/svngs/menu-eng.html
H&R Block - http://www.hrblock.ca/resources/donations.asp
Canadian Tax Resource blog - http://blog.taxresource.ca/charitable-donation-tax-credit/
What Tax reduction strategies do you use?