dave@lsuc.UUCP (David Sherman) (10/27/87)
(Another in my somewhat-delayed series of informational postings
about the Canadian tax system.)
Charitable donations, as we all know, are deductible for
tax purposes. Well, not for long, assuming the tax reform
proposals are June 18 are enacted.
Up till now, and until the end of 1987 (for your 1987 income
tax return which is filed in April '88), charitable donations
are deducted from "Net Income" in computing "Taxable Income".
Taxable income is used as the figure for calculating your federal
tax, and (except in Quebec) your provincial tax is a percentage
(about half) of your federal tax.
The value of your charitable donation depends on your tax bracket.
If your taxable income (i.e., after all deductions) is between
$23,755 and $36,952, for example, your federal marginal tax rate
is 25%, and so your combined federal-provincial rate is 35-40%,
depending on the province. If it's 38%, then a $100 contribution
will cost you $62 after tax. If you're in the top bracket (over
$63,347 of taxable income), your marginal rate will be 48-54%.
Next year (1988, affecting the return you file in April '89),
this will change, assuming tax reform is enacted. Instead of
a deduction, you'll get a credit, which will be the same dollar
figure regardless of your income. Relatively speaking, this will
benefit lower-income taxpayers who make large donations.
The credit will be 17% of the first $250 of donation and 29%
of the excess over $250 of donation for the year. It's calculated
before the provincial tax, so you effectively get a provincial
credit as well (since the provincial tax is computed as a percentage
of the reduced federal tax). The 17% and 29% rates correspond to
the bottom and top federal marginal rates under the new system,
so that for high-income taxpayers, donations above the $250 threshold
are equivalent to a deduction.
If you're considering a substantial donation to a charity in the
near future, you will want to work out whether it's better to have
it as a 1987 or a 1988 donation. Remember that tax saved in 1987
represents money that can earn interest for you over the next year,
of course. But if you're in a low tax bracket and planning to give
over $250, you may find it pays to wait and make the donation in 1988.
(Incidentally, if you think there's a standard $100 available even
if you don't contribute that much, you're behind the times. The $100
"standard charitable/medical" was abolished after 1984.)
David Sherman, Consultant
The Law Society of Upper Canada
Toronto
--
{ uunet!mnetor pyramid!utai decvax!utcsri ihnp4!utzoo } !lsuc!dave
Pronounce it ell-ess-you-see, please...