Giving to charity for bigger tax breaks
 Our
government uses tax policies to accomplish various socio-economic
goals. They encourage people to save for retirement through
RRSPs, to save for education through RESPs, and to invest
in certain ways by offering tax incentives.
Another area in which they use tax incentives is to encourage
support of charitable organizations. Since charitable organizations
have lost much government funding, they’ve had to rely
more on the support of generous individuals. In 1997 the Federal
government introduced a special capital gains tax incentive
to encourage this support.
The incentive was designed to make it attractive for individuals
to donate publicly traded securities by lowering the capital
gains tax to half of the regular rate.
If you own securities which have appreciated in value, you
are better off donating the securities directly to a charitable
organization than by selling the securities and donating the
proceeds of the sale.
In addition to receiving the lower tax rate, you’ll
also receive a tax receipt for the Fair Market Value of the
securities which you can use to reduce the amount of income
tax you’ll have to pay.
Another strategy to maximize the tax benefit
of your donations
There are two tiers of tax credits for charitable donations:
17% for the first $200 donated, 29% for amounts over $200.
After the reduction in provincial tax, the net effect is that
the amount over $200 that you donate will result in a tax
saving roughly equal to the top marginal tax rate. This leads
to a strategy.
Since you can carry unused donations forward for five years,
you can accumulate your donations to take advantage of the
larger tax credit for donations over $200. And because receipts
from one spouse can be used on the other spouse’s return,
you can maximize the credit by having one spouse claim all
the family donations.
If you’d like to speak to someone personally, click
here to find the RBC financial planning professional closest
to you.
Important information about our financial planning services can be found at the bottom of our
homepage.
|
