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THE CITIZEN, THURSDAY, NOVEMBER 25, 2004. PAGE 7.
There are benefits for those who give
The holidays are a favourite time
to give to charity, but many people
don't realize that the donor benefits
as well.
"Donating to charity can be a win-
win situation," says chartered
accountant Ed Arbuckle, of
Waterloo. "Gifts are like tax shelters.
so you do something you want to do,
and save tax at the same time."
Many Canadians like the idea of
leaving a legacy by donating to
charities, said chartered accountant
Alan Munro, a senior financial
advisor and certified financial
planner in Mississauga. "There are
several strategies, depending on
what you can afford to donate and
how you want to do it."
With the holiday season just
around the corner, how can you
shop for gifts without breaking the
bank?
"Managing the urge to splurge is
always a challenge when the
holidays come around," says
chartered accountant Christie
Henderson of Oakville. "A little
foresight and planning will take you
a long way. The first step is to
calculate your regular income and
known expenses. This helps you
determine how much you can afford
to spend. Then draw up a budget to
help you manage your cash flow
better."
A budget is critical to managing
any kind of debt, especially during
the holidays, says chartered
accountant Peter Brown of Niagara
Falls. "Start by making a list of the
people you are buying gifts for and
the gifts you are planning to buy for
them, and then put a dollar value on
each gift. This becomes your
budget. Then — and this is the most
important part — make sure you stick
to your budget."
There are other practical
strategies to use too.
Another way to keep your
spending in check is to draw up a
budget for entertaining family and
friends during the holidays,
Henderson suggests. "Make a New
Year's resolution to do a budget for
next year, and, if you're really
proactive, set aside a certain amount
of money each month in a savings
account to cover the following
year's gifts.
"To avoid unnecessary expenses,
don't shop at the last minute. Look
for bargains. Try shopping off-
season, and buy in bulk when you
can. Give gift certificates, which
people can use during the holiday
sales and get more value. You might
consider seasonal employment to
build up a financial buffer to get you
through the holidays," advises
Henderson.
"And pay cash when you can.
People usually spend more than
they can afford when they use a
credit card, and credit cards come
with incredibly high interest rates —
some are higher than 28 per cent. If
you can't pay cash, then pay off the
credit card as soon as possible, to
avoid interest payments."
Another strategy is to arrange a
line of credit with your bank or
credit union.
It's always a good idea to have a
credit line to use as a source of
emergency funds, said Brown, who
is also a certified financial planner.
"People forget that a.credit line can
be a useful cash-management tool
'and can help consolidate debts, if
it's used properly.
"For example, if you have a card
that awards air 'miles, you can use
the card to collect the points, pay off
the card with your credit line, and
What are the tax advantages of
charitable giving?
People often think that giving to
charity means that the money is
permanently gone, so they can only
afford to give a certain amount,
Arbuckle said. "That's not true,
because they receive a tax credit for
their charitable contribution, which
lowers their taxes. Depending on
their tax bracket and the size of their
contribution, the savings can be
considerable.
For donations over $200, the tax
credit runs from 40 per cent to 46 per
cent as the tax brackets move up to
the maximum. So a $100 donation
does not cost $100. With the tax
credit, it really only costs between
then pay off the credit line,"
explains Brown. "Credit lines have
significantly lower interest rates, so
even if you don't pay off the credit
line immediately, you are still ahead .
because you are paying less interest.
"And, if you do end up with
holiday debts on a series of different
cards, try this strategy to organize
your debt. Pay the minimum amount
on each card — except for the card
$54 and $60, for donations over
$200, explains Arbuckle.
Make your contribution in
December, not January. The tax year
runs from January to December, so
donating in December gives a tax
credit in April, rather than a year
later.
Donations are even more
beneficial if you are receiving
income from capital gains and
dividends," said Arbuckle. "By
donating shares to a charity, you can
reduce the taxable portion to 25 per
cent from 50 per cent of the total
gain and still get the donation tax
credit.
Donations in a will are also
favourable because many people are
with the smallest balance, and pay
this card off as fast as you can. Once
it is paid off, add the amount of this
payment to the next smallest
balance," advises Brown.
For further information, contact a
chartered accountant. And happy
holidays!
— Brought to you by The Institute
of Chartered Accountants of
Ontario.
pushed into top tax brackets due to
income from RRSPs and other
investments.
"If you give to the government,
you may as well give to charity — the
tax credit offsets the tax you pay to
the government," advises Ar-
buckle.
"Also, consider payroll deductions
to spread your contribution over
several months: and claim all your
donations on one return to maximize
the tax credit."
Another way to leave a legacy to
charity is by donating life
insurance.
This strategy is often attractive to
older people with no family, said
Munro. "By buying a universal life
insurance policy, which lets you
layer other investments on it, part of
the monthly premium covers the
insurance costs, while the rest of the
premium is invested. The charity
designated as the beneficiary will
receive both the face value of the
policy and the return on the
investments tax-free.
At the same time, the estate
receives a charitable tax deduction
tax credit.
If the charity is named as the
policy owner and is also the
beneficiary, then any premiums that
you paid into the policy will he
considered a charitable donation for
tax purposes, and the charity will
issue a tax receipt, explains
Munro.
"If you want to have more
flexibility, then designate the charity
as the beneficiary, and retain
ownership of the policy yourself. In
this case, your estate can then deduct
the total amount of the policy as a
charitable donation and reduce
taxes.
For these strategies to be
successful, you must be "able to
afford• to donate in the first place,
Munro cautions. "This means
making sure that your investments
are sound and growing reasonably,
and that there is money left over
after paying expenses. Then,
consider charitable planning."
"Ip deciding to make a charitable
donation, remember that charity also
begins at home. Look to your family,
because your children or
grandchildren may need help with
buying a house or saving for an
education," Munro suggests.
For further information, contact a
chartered accountant.
— Brought to you by The Institute
of Chartered Accountants of
Ontario.
Purge the urge to splurge