According to Harvard Business School, people are happier when they spend money on others, and happy people give more.2 In other words, donations feel good not only for the people receiving them, but also for the people making them.
Donating also makes a real difference for children, the elderly, the less fortunate, animal welfare, the environment, education, human rights and more. Donations play a crucial role in our society. You can’t give to everyone, so how decide which charity to donate to?
How to choose the right charity
What’s important to you? Who would you like to spend time with? What cause would you like to advance? The options abound for local, provincial, national and international charities that you can give to.
Here are a few questions to help you narrow it down:
- Would you rather give money, time, clothes or food?
- What kind of donor are you? Do you prefer to drop your spare change into the donation box at the grocery store? Do you want to run 5 km for a cause? Or do you think it’s simplest to have your donation automatically taken out of your paycheque through payroll deductions?
- How much of your annual budget do you want to devote to charity?
- Do you need a tax receipt?
- Will the charity you choose use your donation effectively? (As a rule of thumb, charities should direct at least 75% of donations to financing their programs.)
It’s also important to make sure that the organization you choose is a registered charity on Canada Revenue Agency’s list of charities - External link. This link will open in a new window..
How to reduce your taxes with donations
Donations have a positive effect not only on you and whoever you give them to, but also on your finances. Charities usually give receipts for donations as small as $20. You can use these tax receipts to reduce the amount of taxes you have pay—just don’t forget about them when tax time comes around!
Charitable organizations must be registered with the Canada Revenue Agency in order to provide tax receipts.
A few financial and tax benefits:
- You get a 35% tax credit (federal and Quebec combined) on the first $200 of donations, and 53% on any additional amount.3,4
- Couples can combine their donations on a single tax return to maximize their credit. Unclaimed donations can be carried forward up to five years.
Cash isn’t the only type of tax-deductible donation. You can also donate shares, life insurance policies, works of art and other goods. For example:
- Donating securities, shares, bonds or mutual funds can really pay off for you and the charity. In addition to reducing the taxes you pay, this kind of donation will also spare you the taxes on any capital gains (difference between the purchase and sale price).
- Legacy gifts (planned giving) are donated to charitable organizations upon your death. You could make a bequest of your RRSPs or RRIFs, for example, and the donation tax credit would help offset the tax payable by your estate when your investments are cashed in.
So, have you figured out how you’ll donate this year?