Claiming charity contributions

If your clients are generous givers and happened write a cheque or donate in cash or kind to their favourite cause or charity in 2009, make sure you remind them to save the receipts as you could help them reduce income taxes when you file their tax returns.

Here are some strategies that make both donor and charity winners:

Give generously: The more people give the more they get back. The first $200 of a charitable donation is taxed at the lowest personal rate. After that for every $100 donated an individual’s tax is reduced by about $46. There is generally an overall limit of 75% of income for this tax strategy.

Give money over food: Instead of donating $54 worth of groceries to the local food bank, consider giving a $100 cheque instead. Charities will provide a receipt for the cash donation, which will allow you to claim a tax credit of $46. This is a win-win scenario with the charity receiving $100 worth of groceries instead of $54 without the donor spending more than planned.

Give winning stocks: While an investor’s portfolio may have taken a hit, the donation of stocks traded on public exchanges make for a great donation. These ‘in-kind’ gifts can garner a receipt for the fair value of the stock and avoid the tax on capital gains. For instance, a donation of a qualified stock worth $1,000 today that was purchased for $200, results in a tax savings of $460. If the donor had sold the stock first and then given the $1,000 cash proceeds to the charity, it would trigger a $400 taxable capital gain and the tax savings would only be approximately $278. The bottom line? Consider donating some investment winners to maximize the tax savings.

Give grandma’s old chair: Art, furniture and china are examples of tangible in-kind gifts. If a charity wants these items, they can write a tax receipt for their worth. If an antique chair was inherited when its value was $200 but is now worth $1,000, a tax credit can be obtained on the full $1,000. While it is tempting to rid the house of clutter, especially for a financial incentive, it is not always easy to get a charitable receipt for these items. Call first to inquire with the charity, if not, local shelters would be pleased to receive these items for free.

For a donation to be eligible for tax reduction:

• you must transfer ownership of property (cash or gifts in kind such as goods, land, or securities) to a registered charity or qualified donee; and
• the transfer has to be voluntary.

If you file your tax return electronically, you must keep your official donation receipts from registered charities and qualified donees in case the CRA asks to see them.

If you file a paper tax return, submit your official donation receipts along with your completed Schedule 9.

Regardless of how you file, you should also keep other supporting documents such as cancelled cheques, credit card slips, pledge forms, or stubs in case you are selected for review.

If you donated to an employee charitable trust, or through your employer as an agent of a registered charity, your T4 (Statement of Remuneration Paid) slip, issued by your employer, should show your total donations for the year. In these situations, the Canada Revenue Agency (CRA) accepts your T4 as your official receipt for income tax purposes.