High-income earners might want to take advantage of next year's higher tax credit
TORONTO, Dec. 18, 2015 /CNW/ - CIBC (TSX: CM) (NYSE: CM) - There are only two weeks left to make a charitable donation for the 2015 tax year. But, in light of the new federal tax rules for high-income earners, delaying your charitable donation to 2016 could save you more tax, says Jamie Golombek, Managing Director, Tax and Estate Planning, Wealth Advisory Services at CIBC.
"While it's true Canadians are among the world's most generous when it comes to giving to charity, our tax system also provides incentives for us to donate," says Mr. Golombek. "But, the federal government's recent changes to the tax rules means that you may want to consider when you make your donation and in what form."
New tax bracket matched by higher tax credit
Starting in 2016, donors, who are subject to the new top tax rate and give more than $200 annually, will benefit from the new 33 per cent federal donation tax credit; however, the new donation tax credit only applies to donations made in 2016 and later years. Gifts made this year or in previous years that have not been claimed and are carried forward to 2016 or future years will not be eligible for the 33 per cent donation credit rate and will be limited to the 29 per cent donation credit rate.
Here are some basic charitable donation facts:
- A federal non-refundable donation tax credit of 15 per cent may be claimed for the first $200 of annual charitable donations.
- However, for cumulative donations above $200, the federal donation credit rate jumps to 29 per cent.
- Provincial donation credits work similarly and may also be available to boost your tax savings.
"It makes sense to claim more than $200 annually to get the maximum donation credit," he says. "If you give smaller sums, save the donation receipts and claim them once you get over the $200 threshold in a future year."
For example, if you donated $100 five years in a row and claimed them every year, your total donation would come to $500, but your federal credit would only amount to $75 (calculated as 15% x $100 x 5 years).
However, if you claimed the full $500 on one tax return, you would receive a federal donation tax credit of $30 for the first $200 (calculated as 15% x $200) and a further federal credit of $87 for the remaining $300 (calculated as 29% x $300), for a total credit of $117. That means you've boosted your federal credit by 56 per cent, or $42, says Mr. Golombek. Higher provincial donation credits would similarly add to the benefits of this approach.
Extra credit for first-time donors
First-time donors can also take advantage of the temporary First-Time Donor's Super Credit, which provides an additional 25 per cent non-refundable tax credit on up to $1,000 of donations. If a donation credit hasn't been claimed since 2007, you may be eligible for the First-Time Donor's Super Credit, he says. However, the extra credit can only be claimed once and is available through 2017.
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SOURCE Canadian Imperial Bank of Commerce
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