Q: Giving Tuesday is coming up – is there any way that I can help out my favourite charity and save on Income Tax at the same time?
A: Giving Tuesday is a great time to give back to others after the shopping frenzy of Black Friday/Cyber Monday. Here in Canada, the Income Tax Act contains generous credits for donating to registered charities. In some cases, the tax savings may exceed your marginal tax rate!
One lesser-known fact about the tax credit for donations is that your gift doesn’t have to be in cash. You can also donate shares to your favourite registered charity and claim the value of the donated shares on your tax return. As a bonus, you won’t have to pay the tax on any accrued capital gains!
This means that the charity receives a higher donation from you while you receive a higher tax credit on your personal return – it’s a win-win! In addition, if you can’t use the whole credit amount in the current year, you can carry the amount forward to a future return.
To qualify for a tax credit, the shares must be held outside your registered plans (RRSP/RRIF/TFSA) and must be listed on a public exchange. The value of your charitable receipt will be based on the market value of the shares on the day that ownership changes to the charity.
If you have shares that you would like to donate that have an unrealized loss, you might want to look at other strategies to help minimize your taxes while benefitting your preferred charity.
A qualified ATAP member can help guide you through this process – get in touch with one today!