All areas of personal finances are interconnected. In the case of charitable giving, this means a gift to a registered charity results in a donation tax credit, which directly reduces the amount of taxes owed. Charitable donations must be made by December 31 to be eligible to receive a tax credit for the current tax year.
The combined federal and provincial charitable donation tax credits for Alberta residents will generally represent 25% of the first $200 of donations in the year, and 50% of donations over $200.
Example 1:
If you have contributed monthly donations of $20 per month for a total of $240 for the year, the charitable donation tax credit is calculated as follows:
($200 x 25%) + ($40 x 50%) = $70
Example 2:
If you wanted to make a one-time gift of $500 in addition to your monthly gifts of $20, the total donations for the year would be $740, and the charitable donation tax credit is calculated as follows:
($200 x 25%) + ($540 x 50%) = $320
Example 3:
If you have donated a total amount of $7,500 in the year, the charitable donation tax credit is calculated as follows:
($200 x 25%) + ($7,300 x 50%) = $3,700
In these examples, donations made to registered charities provide meaningful tax savings.