Taxes and donations to charities

[Leon]

Hi everyone, 

I'm partway through a speciality residency and have started to think about staffhood. I understand the average taxation rate for us to fall between 30 to 40 percent depending on how much we work. I am strongly interested in supporting certain charities designated as such with the Canadian government. I have not yet spoken to an accountant but was wondering if anyone had any insight into the effects of donating large sums of money to charity and the effect on taxes. Let's say the gross income is 350K and one makes a charitable donation of 100k or more, how exactly does that impact taxes? Is it possible to 'give away' all or most of what you would otherwise pay to the government as income tax? I'm not sure about the specifics and hope to recruit some feedback before speaking to my accountant. Many thanks in advance. 

[Fortress]

I think the way it works is that whatever you donate gets deducted from your taxable income i.e you don't pay taxes on the sum of money you donated. I might be wrong though. Hopefully someone else chimes in because I really want to know this as well.

[Monkey D. Luffy]

32 minutes ago, Fortress said:

I think the way it works is that whatever you donate gets deducted from your taxable income i.e you don't pay taxes on the sum of money you donated. I might be wrong though. Hopefully someone else chimes in because I really want to know this as well.

Not quite. The way it works (as I understand), you get two tax credits when you make a donation: one at the federal level, and one at the provincial level. The two tax credits can be calculated using the following table: https://www.canada.ca/en/revenue-agency/services/charities-giving/giving-charity-information-donors/claiming-charitable-tax-credits/charitable-donation-tax-credit-rates.html

Per the table, you get a reduced tax credit on the first $200 donated,  and a greater tax credit on any money donated beyond the initial $200.

e.g. OP makes $350,000 gross in the province of Ontario in 2019. He donates $100,000 of his net income.

He will now receive a federal and provincial tax credit as follows:

Federal: 0.15*200+0.29*(100000-200)= $28792

Provincial (for ON): 0.0505*200+0.1116*(100000-200)= $11147.78

$28792 + $11147.78 = $39939.78

He will therefore receive a total tax credit of $39,939.78 for the year of 2019 which will apply to future taxes paid.

[JohnGrisham]

37 minutes ago, Fortress said:

I think the way it works is that whatever you donate gets deducted from your taxable income i.e you don't pay taxes on the sum of money you donated. I might be wrong though. Hopefully someone else chimes in because I really want to know this as well.

Definitely not how it works ahaha, at least not for individuals versus giant mega-corporations.

[Leon]

Thank you for the replies everyone! 

[ploughboy]

On 11/28/2019 at 6:26 PM, Leon said:

Hi everyone, 

I'm partway through a speciality residency and have started to think about staffhood. I understand the average taxation rate for us to fall between 30 to 40 percent depending on how much we work. I am strongly interested in supporting certain charities designated as such with the Canadian government. I have not yet spoken to an accountant but was wondering if anyone had any insight into the effects of donating large sums of money to charity and the effect on taxes. Let's say the gross income is 350K and one makes a charitable donation of 100k or more, how exactly does that impact taxes? Is it possible to 'give away' all or most of what you would otherwise pay to the government as income tax? I'm not sure about the specifics and hope to recruit some feedback before speaking to my accountant. Many thanks in advance. 

Probably want to talk to an accountant about this.  When you're into six figures, there might be ways to structure it more advantageously.  Or at least get a small piece of infrastructure named after yourself by your appreciative recipient (if you're into that).

But I don't know, mostly because I don't have a hundred large burning a hole in my pocket every year.  You might not, either. 

While $350k per year sounds like an outrageous amount of money, by the time you account for overhead, taxes, mortgage, debt repayment, insurance, retirement savings etc it will likely be a lot less and you might not have a spare $8300 per month to donate to charity.  More power to you if you do, but make sure you've done the math.

[NLengr]

On 12/1/2019 at 10:48 PM, ploughboy said:

Probably want to talk to an accountant about this.  When you're into six figures, there might be ways to structure it more advantageously.  Or at least get a small piece of infrastructure named after yourself by your appreciative recipient (if you're into that).

But I don't know, mostly because I don't have a hundred large burning a hole in my pocket every year.  You might not, either. 

While $350k per year sounds like an outrageous amount of money, by the time you account for overhead, taxes, mortgage, debt repayment, insurance, retirement savings etc it will likely be a lot less and you might not have a spare $8300 per month to donate to charity.  More power to you if you do, but make sure you've done the math.

I agree, there are definitely better ways to gift 100k per year than just writing a yearly cheque. An accountant and maybe a financial advisor would be good to talk to before you start dropping large sums of money. 

I also agree that staff money looks great but once you get into running the business, paying massive taxes and repaying what you owe, it's not the Scrooge McDuck money pool it seemed to be when you were in medical school. 

[Leon]

On 12/14/2019 at 8:16 AM, NLengr said:

I agree, there are definitely better ways to gift 100k per year than just writing a yearly cheque. An accountant and maybe a financial advisor would be good to talk to before you start dropping large sums of money. 

I also agree that staff money looks great but once you get into running the business, paying massive taxes and repaying what you owe, it's not the Scrooge McDuck money pool it seemed to be when you were in medical school. 

On 12/1/2019 at 9:18 PM, ploughboy said:

Probably want to talk to an accountant about this.  When you're into six figures, there might be ways to structure it more advantageously.  Or at least get a small piece of infrastructure named after yourself by your appreciative recipient (if you're into that).

But I don't know, mostly because I don't have a hundred large burning a hole in my pocket every year.  You might not, either. 

While $350k per year sounds like an outrageous amount of money, by the time you account for overhead, taxes, mortgage, debt repayment, insurance, retirement savings etc it will likely be a lot less and you might not have a spare $8300 per month to donate to charity.  More power to you if you do, but make sure you've done the math.

 

Thanks for your replies. I certainly agree and will be arranging to meet with a financial advisor and/or accountant in the next year just to plan things out. The numbers were hypothetical and I think it unlikely to be around that, at least not in the first decade post residency but I figured numbers in the post might be helpful for sample calculations etc. 

Thanks again.

 

[LostLamb]

On 12/14/2019 at 6:16 AM, NLengr said:

it's not the Scrooge McDuck money pool it seemed to be when you were in medical school. 

Offtopic, but I cannot help giving props for the Ducktales reference.

So much for my dreams of my gold coin filled vault and spouting doubloons from my mouth as a staff