Congratulations Manitobans! We rank near the top in charitable giving. A BMO Harris Private Banking poll released in November found 84 per cent of Manitoba and Saskatchewan residents (lumped together in this poll) donated to a charity in the last year. The amount we gave averaged $751 each.
Let’s review the basics of donations and income taxes.
Any donation you make to a Canadian Registered Charity, you can use as a tax credit on your taxes. I don’t like to say “tax deduction”, because you do not use it to reduce your taxable income, but it can reduce your taxes payable. Remember to give by December 31 to use it on your 2012 income taxes!
If your donations are under $200, you should consider not using them each year, but let them carry forward (up to five years). The “tax break” you get on the first $200 each year is small (26%), but the total donations over $200 get a much bigger tax break: 46%. So receipts should be combined for both spouses and should be carried forward to get a bigger tax break in the future.
I do have some clients that don’t have taxes payable (lower income, enough other tax credits), so we carry them forward (can do so up to five years) hoping we can use them in the future. If I know they are unlikely to pay taxes in the future, I recommend that if they want to donate to certain organizations, considering doing it in their adult children’s names (they likely have taxes payable). The payment has to be from the adult child, so make it cash (and receipt in child’s name) or money order or give money to your child and ensure they donate it to the charity of your choice!
And I have some clients that have no federal taxes payable, but do have provincial taxes payable (our provincial government has not increased tax credit brackets for more than 10 years, so we pay more and more provincial taxes each year even if our income is increasing only slightly – that’s my rant for the day!) So with these folks I have to “force” the tax software to claim the donations to reduce their provincial taxes payable.
Do you have shares or mutual funds outside of your Registered Retirement Savings Plan? These would be in a non-registered account or an open account. Did you know you can donate these shares or mutual funds to a charity and any capital gain you have is reduced to zero. So you don’t claim the capital gain on your income tax and you get the full credit for the donation. I have some clients that do this every year. We use an organization called Link Charity. Link Charity receives the donated shares or mutual funds through its brokerage account, and give a charity receipt for the value at the time the investment is sold. Then it sends the proceeds to the charity of your choice. It’s a win-win-win for everyone! If you have some investments that have a capital gain and you want to make some larger donations, keep this in mind!
You can also donate other items, like an antique car. It needs to be formally appraised, but a charity like a museum may love to receive the item and give you a receipt to use on your taxes.
Consider donating your old car. Charities like the Kidney Foundation, Teen Challenge, and Juvenile Diabetes Research Foundation can accept your old car or truck and give you a donation receipt for the value of the vehicle. I will add one note of caution that I learned from my parents. My brother was quick to have the car donated (which is a good thing), but he didn’t know my parents cannot use the donation receipt because they do not have taxes payable. Instead we should have had the car given to one of the children (me!) and then I could have donated it. I learned from AJ Fiola Insurance in Ste Anne that MPI allows a vehicle to be given to a child without it having to be saftied.
Watch out for the gifting tax-shelter schemes that give you a charitable receipt for two to three times what you actually donated. In the past those who participated in these schemes received a large tax refund based on the large charitable donation receipt. And then would spend years fighting with CRA (Canada Revenue Agency) about it. Well starting now, CRA will not give you your large refund. They will hold on to it until the charitable tax shelter is audited. So there is not much motivation to purchase these any more.
Here are a few other tips for the end of the year. Start organizing all your medical receipts. Instead of all those little prescription receipts, just go to your pharmacy in the new year and ask for a printout that will have all of them listed. Much easier for us tax preparers too!
Keep that 2012 calendar! If it has all your medical appointments listed, this is the information you need to determine your medical travel. The appointment needs to be more than 40 km from your home and for a service you could not have received closer (mostly specialists in Winnipeg). And remember to keep track of any parking you paid for too. If you are more than 80 km, then you can claim a $17 meal too.
Keep all the receipts for you children’s activities – sports and other activities are now a tax credit on your tax return (Children’s Fitness Credit and Children’s Arts Credit). And for Manitoba residents, the 16 to 24 year olds can claim a Manitoba Young Adult Fitness Credit.
Keep your paystub from the end of the year; compare it to the T4 you receive. It’s also good to keep for proof of payment: if you pay for some of your disability insurance, and you go on claim for disability income, you can deduct what you paid (but only if you have the proof!).
Merry Christmas! Take pleasure in the company of family and friends. I wish you all a healthy and successful 2013.
Anni Markmann is a Certified Financial Planner, a Certified Professional Consultant on Aging and Tax Expert living, working, and volunteering in our community. Contact her at 422-6631, email@example.com or 36 Dawson Road in Ste Anne.