Christmas in February

Taking advantage of temporary legislative changes

On November 15 of last year, the Canadian Union of Postal Workers initiated strike action, suspending delivery of mail in Canada. In this day and age of email and online payment systems, postal strikes do not have anywhere near the negative consequences as in the past. Our clients choose for the most part to receive their statements online. Most people pay their bills online. At the very least we have options today that make the impact of a strike less onerous. However, its impact is still noticeable and one of the areas that was hit particularly hard was the charitable sector who still rely heavily on the postal service for both advertising and for payments. Charities still do a lot of advertising and receive a lot of cheques in the mail around Christmas time.  

There is one positive outcome of the strike to those of us who are charitably minded. The Federal government chose to extend the deadline to make a charitable contribution and apply any contributions made until the end of February to the 2024 tax year. Under normal circumstances that deadline is always December 31, which has obviously passed. But due to the postal strike, and the recognition that many charities obtain the lion’s share of their donations near that deadline, and that many of those donations come in the mail, the deadline was extended to February 28, 2025. 

As a board member of a national charity myself, I can say definitively that it is the hope of many charities that the donations that would have come in during December due to the cheer and good will generated by the Christmas season won’t be lost and that the extension will be enough to re-ignite that spirit of giving in many donors; that we can have a bit of Christmas in February. 

While the benefit is slight, the extension does indeed provide a small benefit to you, the donor, and also gives rise to some tax planning opportunities. At the end of the day, what this all means to you is that you now have the option to pay tax later – if you want. To pay less tax for the 2024 year by taking some of the tax savings you would have received in 2025 and bringing them into the 2024 year. Paying tax later is generally better than paying it sooner but just be aware that it’s not really a tax savings; rather it’s a deferral and only a deferral for one year. Still deferred tax is better than tax today.

First, let’s go over again how tax saving with charitable giving works. It’s not as simple as one might expect and over the past few decades the rules have changed making it much more complicated. And one of the changes (a change from a tax deduction to a tax credit) still often causes people to underestimate the tax break they get on their donations. Just for a jumping off point, let’s start with oversimplifying and rounding the formula. 

For most people in BC, we save… 

• about $40 (one fifth) on the first two hundred dollars that we donate, and
• about $50 (one half) of what we donate above that first $200.

As I said this is a gross oversimplification and (for most of us) is a rounded-up number, but these are easy numbers to keep in your head, so you can quickly get at least a rough idea of the tax benefit of your donations. The actual numbers, if you want to know, are: 

• 20.1% on the first $200, and 
• only 45.8% on the remainder

The above is true in the vast majority of cases, but if you are a high-income earner, earning over $246,752, then you will get back 53.5% on that amount over $200. 

There are a few additional wild cards. 

1. If you earn so little that you pay no income tax or if you pay federal income tax but no provincial income tax, then these figures won’t apply. You will receive little or no tax benefit, although you can carry the deduction forward for up to 7 years. 
2. Also, if you donate appreciated shares or property instead of cash, the tax savings can be much higher. In fact, they can approach as high as a 71.33% tax benefit in the most extreme of cases.

But as I said, for most of us, it’s that 45.8% number (that I’m rounding up to 50% just for the sake of simplicity). And I think it’s worthwhile adding that donating to any charity always costs you money. There are no magic tax bullets that make being charitable a money maker. There is no free lunch. Not for you and not for the uber wealthy. When you donate, the tax break only reduces the net cost of the gift. It never makes it free.

Quick aside: occasionally, I hear claims from promoters about investment donation schemes that are guaranteed to save you more tax than the investment cost. Either there is risk, in which case that may not work out or the scheme is offside with CRA. Enter at your own risk.   

To help internalize what legitimate tax savings from legitimate donations look like let’s look at a few examples of various donated amounts for someone earning $90,000. 

Donation Amount	Tax Savings ($)	Tax Savings (%)	Net Cost of Donation
$200	$40.20	20.1%	$159.80
$2,000	$864.60	43.23%	$1,135.40
$20,000	$9,108.60	45.54%	$10,891.40

As the donation gets higher the savings approaches 45.8% because it’s only 45.8% on the amount above that first $200. 

So, this year let’s celebrate Christmas a second time and help our charitable friends out with some extra donations. Just remember whatever you give now (before the end of February 28, 2025), you will most likely get back almost half of it when you do your tax return in April.

“For unto us a child is born…” – Isaiah 9:6 (NIV)