The holiday season is all about giving … to others. But if you believe that it’s perfectly alright to pick up a little something for yourself while you’re being generous to others, consider some of the “gifts” that the Canada Revenue Agency has to offer.
Chartered Accountants Desmond Levin, Partner, Audit and Assurance, with Soberman LLP in Toronto, and Rick Santos, Partner, Davis Martindale LLP in London, say things on the list below can be almost as good to give as they are to receive. Check it twice for gift suggestions that are sure to please value-minded recipients - not to mention those who give to them.
Make a charitable contribution - If you’re being taxed at the top marginal rate and you donate more than $200, your tax credit will be enough to offset the tax you paid to earn the amount donated. But if your taxable income for 2010 is below $127, 021, you’re being taxed at less than the highest marginal rate. So the credit will actually be greater than the tax you paid on the donation amount.
There are restrictions and limitations. Donations are cumulative, and must be made to registered charitable organizations. The amount eligible for the credit can’t exceed 75 per cent of your net income for the year, but you can carry donation amounts forward to any of the five following years.
Transfer marketable securities and save the capital gains tax - Rather than selling your investments and donating the cash to your favourite charity, cut out the middleman, and some taxes, too. Your broker or advisor can help you transfer stocks, bonds and other investments directly to the registered charities you want to support. You will get the value of the securities as a donation and there will be no taxable capital gain.
Contribute to an RESP - Registered Education Savings Plans provide a big incentive for parents and grandparents to save for a child’s education - especially when the money earns more inside the plan than out. Any income or interest is sheltered until the funds are transferred to the student-beneficiary to use for higher education. At that time, his or her tax rate will presumably be much lower than the contributor’s, so more money will actually be available for use.
There’s more. Each year the Canada Education Savings Grant will match up to 20 per cent of your RESP contribution, to a maximum of $2,500. That can add an extra $500 each year (20% x 2,500 = $500), and up to $7,200 - the maximum CESG-lifetime amount the government allows in total. For learners from modest-income families, the Canadian Learning Bond will also make a one-time addition of $500 to their RESPs, and a further $100 each year their caregiver receives the National Child Benefit Supplement. The maximum lifetime amount that the government will contribute to a beneficiary under the CLB is $2,025, and includes a one-time $25 contribution to the setup costs for the RESP.
Give to clients and save - Showing your appreciation to clients during the holiday season is a time honoured and tax-deductible tradition. The client would have to be viewed at an “arm’s length” from the company and the gift must be considered a business expense by the CRA. If your gift falls into the meals-and-entertainment category, probably only 50 per cent of the expense will be allowed.
Recognize staff at holiday time - Acknowledging and rewarding staff is part of doing business, during the holidays or any other time. The costs of gifts, service awards, parties or gatherings are 100 per cent deductible, providing certain criteria are met. The value of gifts can’t exceed $500 per year per person if you want to avoid paying tax as the excess over $500 will be a taxable benefit. The gifts cannot be of the “cash” or “near-cash” variety. This usually means gift cards or certificates are out, as they could be taxable to the recipient. The cost of parties or gatherings are also deductible, providing all staff members are included and such company-wide festivities don’t happen more than six times a year.
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