It’s that time of the year again when you’re rushing around and trying to do more things than you have the time for. No, not holiday preparations – we’re talking about year-end tax planning!
On this year-end list is the popular topic of charitable donations. Keep in mind you are able to make donations up to and including December 31st in order for them to be eligible and reported on your 2015 tax return. The question then becomes to which charity? How much? And in what way? The amount of a donation has some lea-way as you can carry forward unused charitable contributions for up to 5 years. In fact, there are actually many ways to make charitable donations so that a tax benefit is triggered. You can make cash gifts or you can donate assets in kind and with each option there are things to consider.
Making cash donations to eligible charities means you will receive a tax slip identifying your contribution and your advantage received (if any). The donation credit is only for your contribution amount less the advantage received. The first $200 of the donation is deductible at the lowest federal and provincial rate and the amount above at the highest rates. If neither you nor your spouse (if applicable) has claimed a charitable donation for any year after 2007 you will be considered a “first time donor”. This means on the first $1,000 of donation credit, you will receive an additional 25% credit. The caveat is that only donations made in cash are eligible for this enhanced benefit. As it stands, this will be in place until 2017.
As an alternative you could consider donating capital in kind. This could be stocks, stock options and or property (although property would receive different treatment). If you donate stocks in kind, you are eligible for an inclusion rate of zero on capital gains realized. That would mean a credit for the fair market value of the donation and zero tax on the capital gain. You can also donate specific items such as collector cars, boats or other collectibles, so long as you receive certification as to the value at time of the donation and it is provided to a registered charity. With these items any capital on the property would be taxable however you do have some option to reduce this exposure by choosing the donation amount (as long as it is between the FMV and the ACB).
Lastly, who should report these donations? This question has been around for a while so you may know this answer. For the maximum credit you would combine donations and report them on one person’s return so you don’t have that $200 threshold more than once however, if you can’t agree you’re only losing out on about $50 (in Ontario).
Please feel free to contact an advisor if you have any questions. We are open and available over the holiday season!