One additional benefit to making a charitable contribution to COSTI, besides the pride you feel from helping, is the tax benefit. Deducting your gifts can lead to considerable savings for you.
You can claim a tax credit or a deduction for the charitable donations you make by completing the appropriate section of your income tax return, and applying the credit directly against the taxes you owe.
You will receive a federal tax credit equal to 17% of the first $200 you donate in a taxation year. For anything you give above that $200, you are entitled to a 29% federal tax credit.
The more you give, the greater the tax credit you receive.
By making a single donation of $500 to COSTI, you can claim the following tax credit:
- 17% of the first $200 = $34
- 29% of the remaining $300 = $87
The total credit that John can apply against the federal income tax you owe is $121.
As provincial income taxes are calculated as a percentage of basic federal taxes, this federal tax credit also reduces your provincial income taxes. For this example, the $500 donation that you made will reduce your Ontario taxes by $45.80.
This provides you with a total tax savings of $166.80.
Tax Incentive for Gifts of Securities
When you make a donation of publicly traded securities, you have disposed of that property for its fair market value. This may result in a capital gain.
Generally, 50% of the capital gain resulting from such a transaction was taxable. However, due to recent changes, when you donate publicly traded securities, you will only have to include in your income, and pay taxes on, 25% of the capital gain on these gifts. In effect, your capital gains tax is cut in half.
Further, this change means that the combined federal-provincial tax assistance on the donation of publicly traded securities can be as much as 64% of the gift value.
Including a capital gain in your income as a result of such a gift also allows you to increase your standards donation limit by a percentage of that taxable capital gain, thus enabling you to offset the tax payable on the capital gain.
When you make a gift through your Will, the gift will be treated as if it was made in the year of your passing, and the credit would be claimed on your final tax return.
For bequests, the annual limit for charitable donations made in the year an individual passes away is 100% of the individual's net income.