There is more to charitable donations than tax benefits
Farmers are all too familiar with the ebb and flow of commodity prices and unpredictable weather, which can have a significant impact on their bottom line.
So why should making charitable do nations be anywhere near the top of your list?
Charitable giving is one of the most meaningful ways to support growth and change in any community. Giving back is rewarding and can be more fulfilling than leaving behind an inheritance because you have a better chance of witnessing the effects of your generosity.
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Not only that, but charitable giving has incredible tax benefits.
Types of donations & tax benefits
A cash donation to a registered charity is the simplest and most common way to make a donation.
The government has created a tax credit system that helps reduce overall taxes for individuals making charitable contributions.
Donations are limited to 75 per cent of an individual’s income. Donations within this limit receive a credit based on a three-tier system.
For individuals, the first $200 of donations qualifies for a 15 per cent federal tax credit. As well, each province has its own established provincial credit.
Donations over $200 receive a higher federal tax credit of 29 per cent. As well, if taxable income exceeds $246,752, donations receive an even higher federal tax credit of 33 per cent, up to the amount taxable income exceeds this threshold.
These credits are especially advantageous for farmers who have substantial taxable income because this highest tier tax credit can significantly reduce the amount of taxes owed.
Donation credits can be carried forward for up to five years and transferred between spouses.
Strategic donation
As a farmer, you are familiar with fluctuating income. Crop yields, commodity prices and weather conditions can be unpredictable.
It is important to plan your donations during years when you are likely to have a higher income.
You may also want to consider making large donations in years when taxable income is elevated due to a particularly strong crop or successful sale.
By donating larger sums in years of excess means, you can take advantage of the higher tax credits. The more donations that end up in the highest tier, the more you can maximize your benefit.
Documentation
If you plan to carry forward donation credits to future years, it becomes especially important to keep track of and maintain a record of the donations made.
In order to make a charitable donation claim, you must have an official donation receipt with the organization’s charitable registration number.
When donating land or commodities, more detailed documentation is required for the donation to be valid. For example, land donations would require an appraisal and working closely with the charitable organization.
Commodity donations
Additionally, farmers can donate commodities such as grain, livestock or other agricultural products to a charity of their choice.
When you donate these types of commodities, you can receive tax credits based on the market value of the good. This eliminates the need to sell this good in the market, reducing what would have been revenue and offers a tax credit all in one.
This becomes a win-win situation as you help the community and improve your tax situation.
While donations are often overlooked, they tend to build stronger and more resilient communities, all while providing immense benefit and reduced tax burden to those who donate.
Colin Miller is a chartered accountant and partner with KPMG’s tax practice in Lethbridge. Contact: colinmiller@kpmg.ca. He would like to thank Karrie Geremia and Tyler Larson of KPMG for their assistance with writing this article.
Source: producer.com