'Tis the season of giving!
No, it's not Christmas, but we are in a season of donating our money whether we like it or not.
I'm talking about tax time. If you're one of the many Canadians frantically looking for money to contribute to your RRSP to defer some tax to age 71, allow me to present a complimentary idea.
Let's use myself as an example:
I not only want to pay less tax, but I would rather see that tax money go towards the causes that I'm passionate about instead of the government. So I decide to donate $10,000 to a registered charity that I've researched and want to support.
Now let's review how the Canadian tax system works when it comes to charitable donations. No matter how much taxable income you claim - $20,000, $200,000 or $2mm - if you donate $10,000 to a registered charity today, you will receive $4950 in the form of a tax credit when you file your taxes. So that means that $4950 is now going to a charity instead of to the government and you're out-of-pocket $5050 instead of $10000, plus you chose where the money went rather than asking the busy folks up at Parliament to decide where it should go.
This is also a great way to find a $4950 TFSA contribution each year!
"Should I donate $10,000 to charity, or contribute it to my RRSP, from a tax perspective?"
Well, I’m not an accountant, but let's say you got $4950 back as part of your "tax refund" from contributing $10,000 to your RRSP. Is that actually your money to spend? Noooooo. You see, it's not a refund! It's a LOAN! You will have to begin paying it back at age 71 when your RRSP magically becomes a RRIF. You don't need to be an accountant to figure that out.
If donating to a great cause and receiving a tax credit sounds like an effective way to compliment your other strategies to pay less tax, please do a little research of your own into a charity which I've been supporting for a while now: Branch Out Neurological Foundation.
Ready to choose voluntary giving (charity) over involuntary giving (tax)?
Please support Branch Out, or any cause you're passionate about that's also a registered charity for tax purposes!
Merry Tax Time!