The federal and provincial governments provide generous tax incentives to encourage individuals to support charities, including the church, but most donors underestimate the true value of these savings. This is partly because federal and provincial tax credits are calculated separately and not shown as one total amount on an individual’s tax return. This is why we think it would be helpful to explain the mechanics of the charitable donation tax credit.
In BC the charitable donation tax credits are calculated as follows:
- For the first $200 of donations being claimed by a BC taxpayer, the combined federal and provincial tax credits total 20.06% (15% federal and 5.06% provincial);
- Any donations exceeding the first $200 on the tax return receive combined federal and provincial tax credits totalling 43.7% (29% federal and 14.7% provincial);
- Tax credits can be used to reduce the amount of tax the donor owes for the year; and,
- The total amount of charitable donations claimed for the calendar year cannot exceed 75% of the net income of the taxpayer. If your donations exceed this 75% limit, you can claim the remaining donations on the tax returns during any of the next five years.
If a donor makes a $10,000 gift in a year to any area of the church, including your congregation, then she or he will pay $4,370 less in tax ($10,000 x 43.7%) when filing the tax return early in the following year.