Author Archives: BetCrooks

Optimize your Donations to Charity: Take Advantage of Taxes

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While rounding up those pesky charity receipts for our taxes, some of my duty-free brain cells started wondering whether we had been optimizing our donations to maximize the benefit to ourselves and those we are trying to help.

Written: 2013
Reviewed: 2023
Revised: 2023

This cluster of articles tells about how we have used our limited time and dollars do the most. But I’d be even more interested in hearing what others have thought up. Consider the donation of your suggestions as yet another good work you can perform!

Calculate your Charitable Tax Credit and Donate More for the Same Cost

In Maximize the Benefit of your Donations to Charity: Helping Food Banks Feed the Most, I talked about the importance of the charitable tax credit. If you donate to a registered Canadian charity, they can issue you a receipt that you apply as a credit against your federal and provincial income tax.

Here are some examples for 2012
Province of Donation: Newfoundland
Amount Donated / Combined Federal and Provincial Charitable Tax Credit
$50 / 11.35
$150 / 34.05
$250 / 66.55
$400 / 130
$1000 / 383.80
$5000 / 2075.80

The Canada Revenue Agency website states: “Generally, your tax savings will be equal to the amount of the charitable tax credit calculated.”

So in 2012 if we donate $500 to a registered charity in Ontario, we will get a combined tax credit of $160.58. So we could actually donate $660.58 instead of $500 and (after we get our taxes submitted) it would end up costing us the same amount but giving the charity $160.58 more!

Using the tax credit to increase the amount you donate will help optimize your donation.

The Charitable Tax Credit is Non-Refundable so Consider Carrying Forward Donation Receipts

Be aware that the tax credit is a non-refundable one. That means you can use it to reduce your payable tax to 0, but you can’t use it to increase your tax refund.

So if you are, say, a student and have no tax payable for the year, then it probably doesn’t make sense to claim the charitable contributions as you will not receive any actual cold hard cash back into your bank account.

Charitable contributions can be accumulated over several years and then claimed. As of 2012, you can carry them forward for use in the next four years. Check with the Canada Revenue Agency site for details, as these rules change from time to time.

So for our student who does not have to pay any taxes, it would be wisest to keep the charitable receipts until the student’s income is higher and there is tax to be paid. This is optimizing the benefit of the donation to the student, not to the charity, but that’s ok too.

Also, if times are tough and your donations are very low, say close to $200 per year it might make more sense to keep the receipts and claim a larger amount once every few years.

For example, in 2012 if you claim $200 per year in Alberta for three years, you would get tax credits of about $50 + 50 +50 =$150. If you keep the receipts for 3 years and submit all $600 in the final year, you would get a tax credit of about $250. You’d actually get about $100 more just by being patient. That would optimize the benefit to you. Then you could give that $100 to charity if you wanted to optimize your donations, too.

Combining Partners Charitable Contributions to Maximize the Tax Reduction

Strangely enough, the Canada Revenue Agency does allow spouses (including common law spouses) to combine their receipts for charitable contributions in any way they want. So if one spouse has a much higher taxable income than the other, and a much higher amount of tax payable, that spouse can claim all of the charitable contributions. Usually the government does nothing to make it worth getting married. This is one of the few tax perks I’ve discovered so far!

Even if you have very low incomes and taxes it may be valuable to have one person claim all of the receipts. The first $200 of donation qualifies for less of a credit than each $ after that 200. So if a couple donate $402 to registered charities, and each claims $201 on their taxes, they will receive tax credits of (in Ontario in 2012) $40.50+$40.50 = $81. If one person claims the full $402, the credit will be $121.22. It’s worth doing the math before deciding who claims the donations and how much they claim.

Giving Away Your Big Stock Winners to Help Charity and Cut Your Taxes

Say you bought CNR shares in your non-registered account a year ago for $76 each. (Actually, it was 11 months ago, but who’s bragging?) Now they are worth $94.50 each. That means if you sold them today, you’d have a capital gain of about 18.50 after paying the commission to the brokerage. You would normally have to pay tax on half of that gain. That means adding 9.25 to your taxable income for each share. And you had 1000s. (Hey it could have happened!)

But say you also wanted to donate money to your favourite charity. You could sell the stock, pay the taxes, and use what’s left to make a donation.

OR you could donate the stock directly. Yes, it means your charity has to be able to accept a donation of stock. But a surprising number of charities, large and small, are able to do that.

If you donate the stock to charity, under the 2012 rules, you would get a receipt from the charity for the value of the stock today. And you could claim that same value of the stock today on your taxes as if you had made a cash donation. AND (and this is the amazing part) AND you do not have to claim the capital gains or pay tax on the capital gains.

Yes, you read that right. You would not have to pay any capital gains tax on the shares you donated to charity. Way cool!

Now obviously this is only a benefit to people who intended to donate to charity anyway. The tax credit for the donation is not equal to 100% of the donation. However, for those who were planning to donate to charity, this is a much more tax efficient way to donate than to sell shares and pay capital gains tax and then donate cash and get a (smaller) charitable tax credit.

So donating shares with a capital gain optimizes your taxes while providing the same value of donation to your charity. And if you donate the money you would have paid in taxes on the capital gain, well, that’s double optimizing.

Donating makes even more sense if the stock was in a Dividend Reinvestment Plan for decades and you didn’t keep track of the changes to your adjusted cost base with each quarterly DRIP that dropped its way into your account. Figuring out what your actual capital gain is now, years later, could be a major pain in the keester. But if you donate the shares, you will never have to know what the gain was. The charity will get the present value of the stock. And you will get a receipt for the donation of the present value of the stock. And “Poof!” no one cares what happened to that capital gain. It has disappeared off the radar of the Canada Revenue Agency. Neat, huh?

Continuing in the Spirit of Giving
Other articles also address the idea of maximizing donations. If you’re intrigued (or just like clicking things) please consider:
Maximize the Benefit of your Donations to Charity: Helping Food Banks Feed the Most

Further Information
Canada Revenue Agency: Donations and Gifts

Join In
Do you maximize your contributions because you optimized your income tax credit? Have you donated a capital gain to the benefit of you and your favoured cause? Or do you have other suggestions for optimizing the benefits of charitable contributions? Please share your experiences with a comment.

Maximize the Benefit of your Donations to Charity: Helping Food Banks Feed the Most

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Around this time of year, I start collecting all of our receipts for donations to registered charities. Now that many are e-receipts it takes a bit of checking to make sure that they are all present and accounted for. (pun intended) The first thing I noticed was that blessedly there were fewer major natural disasters in underfunded countries in 2012. The tsunamis, earthquakes, and floods that resulted in large receipts from international aid groups were mercifully absent. The next thing that crossed my mind was whether we had been maximizing the benefit to ourselves and those we are trying to help through optimally donating.

Written: 2013
Reviewed: 2023
Revised: 2023

The following articles describe some ideas that we have come up with to make our limited time and dollars do the most. I’d be really interested in hearing what others have thought up. There’s lots of room for improvement!

Giving $$ to the Food Bank Feeds More Visitors than Giving Retail Groceries

So far this school year, we’ve been asked to donate to 3 food drives. This is a worthy idea, of course. Anyone’s luck can take a turn for the worse and a food bank can help ease them past the crisis. Then, once their situation has improved, they can be the ones giving instead of receiving.

I do question, though, the logic of giving groceries purchased at regular retail prices. I am a savvy grocery hunter and I know the cycles of sales for most items. And I do pick up healthy staples on sale knowing full well I’ll get pressured into donating them to a school, business or worship food drive. But part of me knows it’s not the way to maximize the benefit from my donation dollars.

If I give the food bank a cheque, instead, they can use it to buy what they most need.
Sometimes what’s donated isn’t actually what’s needed.

Frankly, I get annoyed with some grocery stores near me. They sell pre-packed bags to donate to the food bank for a reasonable price. But what they pack in the bags is upsetting. One recent one had a box of 6 packets of store brand instant oatmeal and a box of store brand snack crackers.

Grocers get real! The clients at food banks are hungry. They are only allowed a small amount per month from the food bank, so they want and need to maximize the nutrition.
For the same price as that 6 pack of sweetened oatmeal, the store could have packed a name brand 1 kg (2.2 lbs) bag of quick oats. A normal sized serving for an adult is 30g. So it would make 33 servings of oatmeal. Versus 6! And instead of the snack crackers the store could have put in a small bag of sugar to sweeten the oatmeal (and maybe get used for other things).If you’ve never eaten oatmeal, yes, quick oats are just as fast and easy to cook as instant oatmeal. You just add hot water, or if you have a microwave, you just nuke it in a bowl or mug.

Sometimes, too, what’s donated does not include the really expensive, but needed, items like baby formula and diapers. (Please don’t say babies can all breast feed. They can’t if their mothers are ill, having chemo, hospitalized or have had mastectomies.) The food bank can buy these items with a cash donation.

The food bank can also usually buy items at wholesale, not retail prices. In fact, some food banks are even able to buy at prices below wholesale since the suppliers know that the food is not being used to compete against retail markets. People shopping at the food bank aren’t shopping anywhere else, unfortunately.

And there’s a third benefit to donating in cash. If you donate more than about $12, most food banks can issue you a receipt for your income taxes. If you donate generously throughout the year, like we do and I hope you do, then your donation generates a tax credit for 38.8% of the donation. Even if you can only donate a very small amount of money to charity, say $200 a year, in Ontario, that would get you a $40 tax credit. (This is the combined federal and provincial credit in 2013.)

The tax credit is not just nice to have. It means I can actually donate 38% more to the food bank without having to pay anything more. That’s 38% more money and therefore more food that the food bank can use to help out people who need it than if I had just spent the original amount at the retail store and given the food itself to the food bank.

The Merit of Giving Food You Can Touch and See

I do realize that there are times when giving food in kind is beneficial for other reasons.
For example, each year our place of worship puts together hampers for families who are having a tough time financially. (For those who care, yes, many of the families receiving those hampers do not have any faith or have a significantly different faith than we do.)

Our family sponsors a hamper for one other family. We buy everything that goes in it. My children watch me shop for the hamper. They see the pile build and they see how many reusable bags it fills when it’s time to give it. And they get a sense of just how much food costs and how little food you get for your money.

We also talk about why we’re giving more than the minimum requested. We talk about our holiday meal and the special things we eat. Then we add some of those treats to the hamper.

We talk about how we use leftovers after the holiday. And we add the things needed to use those leftovers: a 10 kg (22 lb) bag of rice, a five kilo (10lb) bag of onions, a 2.5 kg (5 lb) bag of carrots, cans of lentils and beans, a few packs of herbs and spices. Can you see the soup simmering?

And we add more than the minimum of household supplies. Bulk packs of tissue boxes are visually more impressive to my children than zeroes on a cheque. They know how often kids get colds. The mountain of toilet paper may embarrass them a bit, but since their school often runs out, they know how helpful that is, too.

So sometimes we sub-optimize our contribution in one way (quantity) but we maximize it in another (education.)

Continuing in a Charitable Mood
Future articles will continue to explore the theme of maximizing donations to charity. If you’re intrigued (or just like clicking things) please consider:

Join In
Do you support a food bank? Or have you had to use one during a time of need? Or do you have other suggestions for optimizing the benefits of charitable contributions? Please share your experiences with a comment.