Giving is Sexy

Do you give to charity?

For those of us who track our net worth monthly, the idea of giving money to charity can be counterintuitive. Why would you give your money away, when it, on paper, decreases your networth. It is a cost, like any other, but it can pay some surprising benefits.

The first is some handy tax deductions:

As a Canadian, for federal tax, you get a 15% tax deduction on the first $200, and 29% on everything over $200. Also, every province has their own additional deductions rates, ranging from Ontario at 5.05% on the first $200/11.6% on everything over $200, to Quebec which allows a deduction of 20% on the first $200, to 24% on everything over $200. You can claim donations up to Dec 31 of the tax year, and any unclaimed donations from the prior 5 years. Canada Revenue Agency has a handy tax credit calculator: Charitable donation tax credit calculator.

If you haven't claimed the Canadian Donation Tax Credit before, the government is offering a First Time Donor's Super Credit! This new tax credit gives an additional 25% off up to $1000 of monetary donation for a first time donor. It can be claimed once in the 2013-2017 tax year for donations made after March 20th 2013. Effectively this means that a first time donor will get 40% federal tax credit for the first $200 of donations, and and 54% federal tax credit for donations between $200 and $1000.

If you're inclined to give to political parties, there are even more generous tax credits available. You can receive a federal tax credit of 75% of your contribution up to $400, 50% of the next $350, and 33.3% of the last $525 up to a maximum credit of $650. Different provinces also have different rules, so read up. The reason for the very generous tax credits is that this is an indirect method of public financing of elections.

The second, and more important in my opinion: Giving makes people happier.

Researcher Arthur Brooks says that people who give charitably are 43 percent more likely to say they are "very happy" than non-givers, while non-givers are three and a half times more likely to report they are "not happy at all." Putting a charitable donation in the mail provide great personal satisfaction.

If you cannot afford to give money, you can give your time. Giving in this way is perhaps even more rewarding, as you can directly see the impact of your efforts. Charitable giving of any form is a great way to get involved and shape your community.

As a donor you have choice in when and how you give. Some people donate to friends and family as they do runs/walks/bikes for charities. Others give to charities they support. Others give funds to shape specific initiatives. I give to a scholarship at my university that was created to support a specific kind of student.

And besides, giving is sexy. A person who is generous is more attractive than someone who is miserly.

What about you? Do you give to charity? Is it a part of your monthly budget?

TFSA - Tax Free Savings Accounts

The TFSA (Tax Free Savings Account) introduced by the Canadian Government in 2009 has become a cornerstone of my new investing philosophy. A TFSA is similar to a Roth IRA in the US; after tax monies are contributed, investments gains are tax sheltered within the account and withdrawals are tax free.

Some background on the rules:

Canadian residents age 18 or older can contribute up to $5,000 annually to a TFSA.
Investment income earned in a TFSA is tax-free.
Withdrawals from a TFSA are tax-free.
Unused TFSA contribution room is carried forward and accumulates in future years.
Full amount of withdrawals can be put back into the TFSA in future years.
Choose from a wide range of investment options such as mutual funds, Guaranteed Investment Certificates (GICs) and bonds.
Contributions are not tax-deductible.
Neither income earned within a TFSA nor withdrawals from it affect eligibility for federal income-tested benefits and credits, such as Old Age Security, the Guaranteed Income Supplement, and the Canada Child Tax Benefit.
Funds can be given to a spouse or common-law partner for them to invest in their TFSA.
TFSA assets can generally be transferred to a spouse or common-law partner upon death.

Current investment amounts are only $5000 a year, but in 10 years this will provide an account of $50000 plus any investment growth. This is a significant sum and will be a significant part of any portfolio.

2007 Top Marginal Rates of Tax for Canadian Dividends

I've been researching into the tax implications of having various dividends and capital gains. I found a good resource from Grant Thorton LLP which I've shared here. Simply put in each province, when you combine federal and provincial tax rates, you're going to get taxed at a different rate depending if you declaring interest income, capital gains, foreign, eligible, or other canadian dividends. An eligible dividend is declared when it is awarded by a Canadian company. You will pay the highest rates of tax on common interest and on foreign dividends.