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Charitable Donations

Put your Money Where your Heart Is: Charitable Donation Tax Receipts

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We all love to give, and we want to give to a cause that touches our hearts. But what if I can show you a way that you can give and feel good about it, and also get a tax refund from that?

Pretty cool, right?

Hello, my name is Taayla Mark with Engrace Financial Solutions. I am so glad you’re here today because I love the topic we’re going to talk about, and I know that you will, too.

People are naturally geared toward giving. I honestly believe that. And how awesome is it

that we live in a country where we get rewarded for putting our money where our heart is?

And that is the side benefit of charitable giving (because the first benefit is in the giving)!

Charitable Donation Income Tax Receipts

Did you know, when you donate to your favourite registered charities, the Canada Revenue Agency supports your good deeds with a good deed in return?

The money you give away creates a tax credit against your personal income tax.

Although the term “tax break” may not be what springs to mind when you are moved to support a cause, you will be reaping that benefit anyways.

Of course, like all worthy, tax-related things, this benefit comes with some rules and regulations.

But don’t worry, they won’t hurt.

Here’s how it works:

First, to qualify for the tax credits, your charity of choice must be registered with the Canada Revenue Agency and must have a charitable registration number.

How to calculate what your CRA tax credit will be.

This is a little more involved, because you have to know the federal rate, which is the same for everyone in Canada, and the provincial rate, which is different for each province.

To keep it simple, I have provided a calculator in the video description below. It will do all the hard work and make sure that you qualify for the right amount, or you can use the CRA Charitable Donation Calculator

As to the extent of tax relief you can expect from your charitable donation, just know that if your total gift is $200 and under, you may be less thrilled by the tax credit you will get.

As an example, if you donate $200, you can expect anywhere from $40 to $60, depending on the province you live in.

However, for every dollar that goes over $200, your tax credit is closer to 40 to 50%, so that means that the $1000 you give away costs you $600, and if you live in British Columbia, you would receive a $400 tax credit. That’s actually a great incentive for you to give more.

You can combine CRA charitable donation tax receipts with your spouse or common law partner

If larger gifts are not available for you at this stage, don’t stop donating altogether, because there are other ways for you to take advantage of the bigger tax credits.

If both you and your spouse or common law partner give, then you can combine both amounts and apply to one person’s tax return to bring you over that $200 threshold.

Carrying over your CRA charitable donation tax receipts

Or, if you are single, you can hold off on claiming the donation this year and add it to next year’s total.

In fact, you can carry forward your cash donations for up to five years!

When it comes to giving to a worthy cause, it isn’t about the tax breaks that we get, although it is a helpful perk. It is about our connection to others and how our hearts break for their suffering, and our willingness to act.

If it wasn’t for your generosity in sharing your donations and time to help those in need, our world would be a much sadder place, so thank you to all the heroes out there.

I hope you are encouraged to give by what you learned in this video and I have so much more to say regarding financial planning around charitable giving. If you would like to form a plan around your charitable giving, please call me at (604) 428-8765 for a free consultation. 

Let me know your about your favourite charities and tell me why the cause or organization moves you in the comments below, because I want to create a community of givers!

CANADIAN TAX: Basics to Paying Less with Jan Mark, CPA

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Benjamin Franklin once said, “In this world, nothing is for certain except for death and taxes.”

In a previous video, we talked about being financially prepared in the event of a death, but in my latest Street Smarts with Taayla episode, we’ll talk some Canadian tax basics.

Taxes are a subject that none of us want to talk about, but with these tips, we can get through it together.

How does Canada’s graduated income tax system work?

In Canada, we have a graduated income tax system, which means that the more money you earn, the more taxes you pay.

Income taxes consist of two parts: the federal tax, which is the same for everyone, and the provincial tax, which depends on where you live.

To determine the taxes you would be paying on your income at different levels and brackets, you can use the marginal tax rate.

At the lowest income level or bracket, you pay $0 in taxes because your income is below what’s called the “personal amount.”

Think of a high school student working a part-time job and making less than $11,000 per year.

For 2018, in British Columbia, a combined marginal tax rate for federal and provincial taxes is just above 20 percent. That means, for every dollar this high school student earns above the personal amount, they have to pay 20 cents to the Canada Revenue Agency in tax. That tax rate is applied until their income climbs up to the next income bracket, where a new tax rate for their new bracket is then applied.

The highest combined federal and provincial tax rate in British Columbia is currently 49.8 percent for those in an income bracket of over $200,000 per year.

However, there are a few different methods we can use to offset the taxes we pay as our income grows.

For my latest video, I interview Jan Mark, a reputable CPA with Mark & Tsang Chartered Professional Accountants, to hear her tax preparation tips. Read Jan’s advice below, and watch the video for the full interview.

What are some common tax preparation mistakes that you see?

One of the most common mistakes is in regards to foreign asset reporting. Most people are just confused about what that means, and when to report it. Basically, if your foreign asset is costing you more than $100,000, you will have to report it. Foreign assets that you own outside of Canada, such as a bank account or vacation property, will have to be reported.

What is the difference between a tax deduction and a tax credit?

A tax deduction is a reduction against taxable income. The amount of savings that you receive will depend on your personal marginal tax rate. For example, a $1,000 deduction with a 30 percent margin, will give you $300 in tax savings.

A tax credit, on the other hand, is a dollar-for-dollar reduction against the tax liability you owe. For example, if you receive a $1,000 tax credit, you will get the $1,000 directly against the tax that you owe.

Is there a “superhero” tax credit?

Yes! Charitable donations in Canada give you a pretty good tax credit. For any donations you make to charitable organizations, for the first $200, the credit you get will be for the lowest marginal rate. Anything after that will be for the highest marginal rate; for 2018, that’s close to 50 percent. For example, if you make $1,000 in donations, the amount you will receive in tax credits will be around $400.

What is the typical tax deduction available for employees?

For employees, the tax deduction is quite limited. The most typical deduction is for an RRSP or the Registered Retirement Savings Program.

Due to the restrictions in having an RRSP, what would be an optimal income level for one to start at?

It depends on the individual’s tax situation and on the retirement tax rate at the retirement age. It also depends on the individual’s discipline to save or not. RRSP is a program put in place by the government to defer your current income and pay tax into the future. In my opinion, any time you have the opportunity to defer tax, you should.

You can learn more about RRSP in our last video!

How else can we take advantage of tax deductions?

The tax deduction for employees is limited. But if you’re self-employed, a lot more deductions are available to offset against the business income. For example, any rent or upgrades to your business space or home office, wages paid to your employees, office supplies, transportation costs, or even meal you took your clients to, are all deductible against your business income.

A big thanks to Jan from Mark & Tsang Chartered Professional Accountants for joining us in my latest video to provide insight on how to prepare our taxes effectively. If you have further questions for Jan, you can set up a consultation with her at [email protected] and she’ll work to find the best solution for you.

Don’t be discouraged by our tax system. In future videos, we will continue to expand on how we can best manage (and minimize!) our taxes so you can keep more of what you make.

Thank you for reading along in my latest post. I hope these tax tips are helpful for you as you file your taxes this year, and if you have questions regarding your finances for the future, I’d love to help!

Please like and share my videos, it lets me know when I’m doing things right! If you have not subscribed to my channel, please do so now and I will bring more segments and topics to you each month.

RRSP

Is RRSP right for YOU?

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Are you thinking about your retirement and wondering if an RRSP is right for you? In the latest Street Smarts with Taayla video, we’ll dig deeper into this question and find a solution that works for you.

What is an RRSP?

If you’re unfamiliar with or new to RRSPs, you’re not alone! An RRSP, or Registered Retirement Savings Plan, is one of the most commonly misunderstood types of investment accounts.

My clients will ask me if an RRSP is right for them, and as much as I’d like to give a simple “yes” or “no,” I usually tell them it depends — because it does!

How to know if an RRSP is right for you

Before I can know if an RRSP is the right choice for you, I need to know five key things about you: your age, income, first home, education, and emergency funds.

When to take advantage of RRSP savings

An RRSP can be an excellent tax savings and a great way to save for retirement. However, if you’re under the age of 30, chances are you’re not at an income state where you can best take advantage of the RRSP savings.

Why?

Because when you make less money, you’re also paying little to no income taxes. If you wait until your earning increases before you contribute to your RRSP, then the potential to save on your taxes could be higher than they are now.

While I don’t usually recommended having an RRSP for incomes under $50,000, if you do decide to contribute to one, you don’t have to claim the plan on your taxes for the current year — you can carry it forward indefinitely.

For example, if your income is $20,000 today, and you believe your income will continue to increase over time, then start saving in your RRSP today. Just make sure to wait until you are at a higher marginal tax rate before you apply your RRSP against your income, whether that’s next year or somewhere down the road.

How to use an RRSP to reach your goals

In my previous video on RRSPs, I talk about how you could use your RRSP toward the down-payment of your first home, or toward the cost of a full-time education. While RRSPs are an investment account for your retirement, there are many benefits to utilizing your RRSP sooner rather than later.

If you’re looking to buy your first home, or want to pursue higher education, then go back and watch how RRSP can help you achieve these goals.

When to prioritize an RRSP

The last thing to consider when deciding if an RRSP is right for you, is the status of your emergency fund. If you have little to no emergency fund, then establishing a solid fund should be your first priority!

Fill your emergency fund before your RRSP, because an RRSP cannot protect you quite like an emergency fund can. While you can withdraw money from your RRSP, there are tax consequences for doing so.

I recommend to my clients to keep an emergency fund worth at least three months of their salary — ideally six months.

Let’s think about this scenario: you have accumulated $30,000 in your RRSP and now you have an emergency where you need cash quickly. You decide to take out the $30,000, but what you don’t realize is that when you do that, 30 percent is being withheld. Now you only have $21,000 you can use!

You would then have to include the $30,000 withdrawal from your RRSP in your income taxes for the year. So if your standard income for the year was, say, $50,000, and you added the $30,000 to that, your income tax return would then be based off $80,000 — a much higher marginal tax rate.

RRSPs are meant to be withdrawn from strategically, and in emergency, you don’t have time to plan for that.

Thank you for reading along in my latest post. I hope this dive into RRSPs has been helpful in allowing you to decide whether or not an RRSP is right for you.

Ask me questions in the comments section below, and let me know what other savings vehicle you are using for your retirement. I’d love to learn more!

Please like and share my videos, it let’s me know when I’m doing things right! If you have not subscribed to my channel, please do so now so I can get more segments and topics to you each month.

Engrace Financial Retirement

How to create a guaranteed lifelong income

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“Buying a prescribed annuity? Act Fast!” is an insightful article on using a prescribed annuity as your financial vehicle of choice to create a guaranteed lifelong income.

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