The Case of the $104 Shoebox
Getting the most out of your charitable donations
Canadians are a generous bunch. Statistics Canada reports that the amount Canadians donate to charity increases every year. With the incredible response to the tsunami in Asia, that tally is bound to be even higher when we look back at 2004.
If you gave to charity over the past year, you probably know you’re entitled to a tax deduction. But did you know that the amount of that deduction (and the size of your refund) can depend on how you declare your donations on your tax return?
It’s as simple claiming your charitable donations once every few years, rather than every year. This is a good idea especially if you give a modest amount — less than $200 — every year.
Here’s how it works: You get a tax credit of 16% on the first $200 of charitable donations. But your tax credit nearly doubles to 29% on every dollar you donate over $200. You’re allowed to hang onto a charitable receipt and claim it up to five years after you make the donation. This is where the shoebox comes in.
Albert and Betty each give $200 to charitable causes every year.
Albert claims his entire tax credit each year. Each year he gets $32 in tax credits (16% of $200). At the end of five years, he’s collected $160 in credits.
Betty puts her receipts into a shoebox for five years, then claims them all at once. She earns $32 on her first $200, then $232 on the remaining $800 (29% of $800), for a total of $264.
Albert’s credit: $160
Betty’s credit: $264!
Betty spends the extra $104 on a fabulous pair of red slingback shoes.
(Naturally, she keeps the box.)