Apart from Registered Retirement Savings Plan (RRSP) contributions made by individuals, tax planning strategies for 2017 must be completed by the end of the year. With December 31st fast approaching, there are only a few weeks left to take last minute steps towards reducing your 2017 tax bill. Luckily, there are a number of uncomplicated tax planning strategies that can be implemented in this short period of time.
The first of which is optimizing Charitable Donations.
Both the federal and provincial/territorial governments offer non-refundable tax credits for donations made to charitable donations within the year. To be eligible for the tax credit, donations must be made to a registered charity and must be made by the end of the tax year. While the credit is non-refundable, it can be carried-forward for up to 5 years. This means that you will still have access to the credit, even if it is not fully used on your 2017 tax return.
Optimizing Your Charitable Donation Tax Credit
1. Don’t Wait to Donate If you have already donated this year and were planning on donating again, in the near future, it is a good idea to do it before the New Year rolls in. This is because the charitable donation tax credit increases with the amount of the donation. For the first $200 in donations, you will receive a non-refundable tax credit of 15% from the federal government plus a corresponding provincial/territorial credit. Any amount that exceeds $200 will be eligible for a 29% non-refundable federal tax credit (33% if your taxable income exceeds $202,800 in 2017). Example: If you donated $200 in March of 2017 and another $200 in December of 2017, you would receive a federal tax credit of $88 in 2017. 2017 Tax Credit = $200 x 15% + $200 x 29% = $88 If instead you donated $200 in March of 2017 and $200 in January of 2018, you would only receive a tax credit of $30 in 2017. The remaining $30 would be claimable in 2018 giving you a total tax credit of $60 for the $400 donation. 2017 Tax Credit = $200 x 15% = $30 2018 Tax Credit = $200 x 15% = $30 If your total donations for the year will remain under the initial $200, you may be better off waiting to donate in the new year to optimize carry forwards.
2. Take Advantage of the Super Credit In addition to the above strategy, 2017 is the last year for which you can claim the super credit. The super credit is for individuals who have not donated to a charity since 2007 and allows the taxpayer to claim an additional 25% tax credit on up to $1000 in charitable donations. Example: If you have not donated since 2007 and you donate $400 in 2017, you would receive a federal tax credit of $188. 2017 Tax Credit = $200 x (15% + 25%) + $200 x (29% + 25%) = $188
3. Combine Charitable Donations to Optimize Your Tax Payable You can combine any eligible charitable donations made by you and your spouse or common-law partner and claim them on a single return (generally they should be claimed on the spouse who earns a higher income). This allows you to optimize the tax credit received for your donations, reducing taxes payable.
For more information on tax planning using Charitable Donations, contact us today! We look forward to helping you optimize your individual and business tax returns!
