When creating your first budget, remember it’s not the final version—revisions will be necessary as you go along. One crucial aspect often overlooked initially is donations.
Donations not only support others but also offer tax benefits, lowering your taxable income or increasing your tax refund. It’s essential to include them in your budget. Beyond RRSPs, donations are a prime example of a tax-deductible item.
Charitable Donation Tax Credits:
Different provinces in Canada have varying charitable donation tax credit rates. For example, in Ontario for the 2010 tax year, donations up to $200 earn a 5.05% provincial credit, and amounts over $200 earn an 11.16% credit. Check here for rates from all Canadian provinces and territories.
Example Calculation from CRA:
Danielle, a Saskatchewan resident, donated $400 in 2010:
- Federal tax credit: 15% on the first $200 and 29% on the remaining $200. Total = (15% × $200) + (29% × $200) = $88.
- Provincial tax credit: 11% on the first $200 and 15% on the remaining $200. Total = (11% × $200) + (15% × $200) = $52.
- Combined tax credit = $88 + $52 = $140.
In essence, you get back nearly one-third of your donation in tax credits, along with the social and charitable benefits.
When donating, ensure you receive an official tax receipt with a proper registration number. Avoid offers that seem too good to be true, especially those promising returns significantly greater than what CRA calculations justify.
Budgeting for Donations:
Allocate a specific amount in your budget for donations. Decide which organizations or charities you will support. Personally, I allocate funds to one or two fixed charities and adjust for unexpected needs or disasters. Always ask for an official receipt for every donation and file it for tax purposes.
If you make infrequent donations, consider incorporating them into another category such as ‘Emergency’ or ‘Personal Spending.’ Note it down to ensure proper tracking and deduction.
Update: As I finalize this article, a catastrophic earthquake and tsunami have devastated Japan, underscoring the importance of budgeting for donations. We must be ready to support others in times of need and hope for mutual support when required.