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RED DEER, Alta. Dec. 7, 2015/ Troy Media/ – There was a time in my life when I felt I was rich. My wife and I had paid off the mortgage, we had no car or credit card debt, our children had graduated and left home, and we were both working full-time.
Good years. One can feel rich without actually being rich ― and it’s a whole lot easier to achieve.
Along the way, there was always one tax break that in relative terms gave us more of an advantage in our modest income bracket than it did the truly rich: the non-refundable tax credits for charitable donations over $200 a year.
However, philanthropic foundation Imagine Canada sent out a warning recently that unless the federal government tweaks the tables for calculating that non-refundable credit, it may cost rich people more to give generously. In fact, it ran numbers saying top-level income earners will be taxed more harshly if they give significantly to charity than if they simply keep the money.
As for the rest of us? Generosity will always pay. Here’s how.
The feds set up the tax system to encourage charitable giving. Money given to charities would not be taxed as income. But instead of simply allowing you to deduct your donations from your income, they created a system of non-refundable tax points (non-refundable means they never disappear; they’re yours until you claim them.)
The tax points count against your taxes, not your income ― and for almost all of us, that’s a bonus. A subsidy, really.
The points count thus: On the first $200 of charitable receipts you enclose with your tax return, claim 15 per cent (that happens to be the lowest income tax rate, and the rate the vast majority of us pay on the majority of our income). On receipts above $200, claim 29 per cent (also the highest current income tax rate, which only the top income-earners in Canada pay).
Prime Minister Justin Trudeau promised in his election campaign to add a new tax bracket: 33 per cent for taxable income over $200,000.
Until I read the warning from Imagine Canada, I felt I could pretty well ignore that promise; it will never, ever affect me. But I’m paying attention now.
Could it be possible that my donations over $200 will get me 33 per cent off my taxes, even though my income is only taxed at 15 per cent? That’s not a refund, that’s a subsidy, and I’ll gladly take it. Especially considering that the Alberta government tops that refund to half of my donations.
So, $1,000 in receipts right now gets me $210 off my provincial taxes (refund at 21 per cent). That’s the equivalent of what I would have paid on $2,100 of taxable income at my low rate of 10 per cent.
That’s on top of the $264 I get back from the feds, which represents just over $1,700 of federally taxable income at my low tax bracket of 15 per cent.
But for rich guys, like our prime minister, it’s a different story. If the top refund rate does not match the top income tax rate, the wealthy get double-taxed on the difference. They pay income tax on money they never got to keep.
That’s a problem for Imagine Canada, and the big, industrial-scale charities that raise big bucks from high roller donors.
In Alberta, the rich really do the heavy lifting when it comes to charitable giving. According to Imagine Canada, half of Alberta donors give less than $160 a year – not enough to trigger the big tax savings. But our average donation rate is high for the nation: $812. That means we have a goodly population of high rollers who happen to be generous.
What happens if they begin to find their generosity is not recognized the way it used to be?
Remember, Alberta is also adding new income tax brackets. Without going into detail, the rate slides up from the current 10 per cent everyone pays, to 15 per cent on taxable incomes over $300,000.
The higher the provincial tax rate, the greater the disincentive for the rich to make big donations – if the tax credits for being generous are not also recalculated.
December is harvest time for charities. About 60 per cent of us will give a total of $5 billion to charity this month, which is about 40 per cent of the year’s total giving.
But our charities’ need is higher during this fiscal slowdown as well. Charities report higher traffic at food banks, soup kitchens, shelters, Christmas Bureaus, mental health supports and more. Canada can hardly afford to de-incentivize the rich from making large donations right now.
But the incentives are still there for the vast majority of Canadians who should merely feel rich. If you look at the plight of refugees and the poor around the world, and consider a cold winter ahead for the newly-unemployed here at home, it’s not hard to feel rich.
Find a charitable cause that inspires you, and see what it feels like to be a high roller.
Greg Neiman is a freelance editor, columnist and blogger living in Red Deer, Alta. Greg is included in Troy Media’s Unlimited Access subscription plan.
The views, opinions and positions expressed by all Troy Media columnists and contributors are the author’s alone. They do not inherently or expressly reflect the views, opinions and/or positions of Troy Media.