Donor Report
The Mathematics of Charitable Giving
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By Jamie Golombek, CPA, CA, CFP, CLU, TEP
anadians do not give to charity for the tax benefits. After all, no matter how tax effective we can structure a charitable gift, a donor will always have more money left at the end of the day if she had kept the funds donated for herself and not made a gift. But for individuals who are philanthropically inclined, having a good understanding of the math behind a charitable gift may encourage some donors to consider giving more when they realize the real net after-tax cost of their gift. Let’s take a look at three scenarios: the value of the donation receipt, the donation of a gift of appreciated marketable securities and making that gift of appreciated securities via a private corporation.
their top provincial donation credit rate. What’s interesting, however, is that for all but the highest income Canadians, donors who give more than $200 in total in a calendar year receive an effective combined federal/provincial donation tax credit rate that is higher than their marginal tax rate. This leads to some interesting results. Let’s take a look at an example.
The donation credit Charitable donations to registered charities or foundations attract both federal and provincial non-refundable tax credits. On the federal side, donors get a credit of 15 percent for the first $200 of annual charitable donations. For total donations exceeding $200, the federal credit rate jumps to 29 percent and, for high income earners, the rate is 33 percent to the extent that their taxable income exceeds that top federal rate (income over $214,368 for 2020). Parallel provincial credits work similarly, although not all provinces have adopted their top tax rate as
Let’s say that Carol lives in B.C., has $75,000 of income and contributes $1,000 in total to a variety of charities in 2020. The first $200 of donations attracts a federal tax credit of 15 percent or $30 and a B.C. tax credit of 5.06 percent or $10.12. The next $800 of donations will attract the higher federal credit rate of 29 percent or $232 and the higher provincial B.C. credit at a rate of 16.8 percent or $134.40. Thus the total donation tax credit Carol will get from her 2020 donations is worth $406.52 (i.e. $30 + $10.12 + $232 + $134.40). Since Carol’s 2020 income is $75,000, that would put her in
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FOUNDATION Magazine
January/February 2020
A good understanding of the math behind a charitable gift may encourage some donors.
foundationmag.ca
