| A recent article in Fast Forward attacked the lack of good tax incentives for people to give more generously to charities (Non-profit groups bound and gagged, by Adrienne Beattie, City, March 13 - 19, 2003). In fact, the tax information in the article was wrong, and surprisingly generous tax incentives do exist both on the provincial and federal levels. It's true that if you don't pay taxes you get no help at all, but everybody else gets a tax reduction, ranging from 26 per cent to more than 40 per cent of their charitable givings. And what's more, everybody's givings are treated the same, regardless of your total income or federal tax bracket.
The article mentioned a "tax deduction of only 10 per cent." In fact, the system does not work by deductions from income at all, but by "non-refundable tax credits," where your tax payable on your net income is reduced by an amount that depends on how much you give to registered charities. On total givings up to $200 you get a 10 per cent credit from Alberta and 16 per cent from the federal government, for a total of 26 per cent credited to reducing your tax payment. On all givings over $200, you get 12.75 per cent from Alberta and 29 per cent from the feds, for a total of 41.75 per cent.
So if you give $100 in a year, you would get $26 back in the form of a tax reduction. If you give $200, you get $52 back. If you give $500, you get that $52 of the first $200 and 41.75 per cent of the remaining $300, or $125.25, for a total credit of $177.25 or more than 35 per cent overall. If you give $1,800, your total credit is $720 or 40 per cent overall.
What this means, in terms of encouraging people to give to charities, is that for any amount over $200 we are essentially giving with roughly 60-cent dollars (58.25 cents). In other words, because of the tax credits, we can afford to increase our budget for charity monies, not just by 40 per cent, but by a factor of 100/58.25 or about 1.7, for an astonishing 70 per cent increase!
How this works is this: suppose you have given $200 already to various charities and would like to give, say, another $60 to one more good cause, but are not sure you can afford it. If you wait till April or June of the next year, when your tax return is processed, you'll get about $24 of that $60 back, so your extra gift will only cost you about $36 overall. But, suppose you decide that you really can afford to pay the full $60 over the course of a year, by paying more now and waiting for the tax credit. Then you can give not just 40 per cent more, but around 70 per cent more, another $42, for a total of $102. And at tax time your credit on this $102 is 41.75 per cent, or $42.59, so your get your $42 back and a little more, and your extra gift cost you just under your budget of $60.
One thing more: if you're lucky enough to be able to do without your tax credit this year, you can save your charitable receipts for up to five years and then submit them in a bunch, taking advantage of the higher overall rate of credit on higher total givings. So people, give generously!
Editor’s note: The information used by the writer was outdated. The correct information is available on the Canada Customs and Revenue Agency Web site (http://iis-sii.ccra-adrc.gc.ca/ez.indv.tierp/jsp/ezRenderForm-e?bodyId=52&type=4&group=INDV). We apologize for the error. |
Copyright ©2003 FFWD. All rights reserved.