Charities 101

A registered charity is an organization established and operated for charitable purposes, and must devote its resources to charitable activities. The charity must be resident in Canada, and cannot use its income to benefit its members. Charities are usually registered as Corporations, or are governed by a trust or a constitution. They may be under a covering of a parent Organization.

The main advantages of charities are:

Ø  Charities are able to receive gifts tax free.

Ø  Charities provide receipts to donors for tax savings.

Ø  Charities are tax exempt

Ø  Charities make a great impact in our communities, provinces and our country!

The main disadvantages of charities are:

Ø  Charities take time to set up.

Ø  It is a large undertaking to set up a Charity, and there are ongoing requirements.

Ø  Charities must meet a public benefit test.

Ø  You cannot keep profit of the charity.

Ø  If you lose charitable status, all assets are taxed, or if break any of the various charitable rules you could face various consequences.

Many people have asked what the difference is between a charity and foundation in Canada.  The main difference is that charities are public and foundations are private.  Foundations in Canada are charities and mostly operate by the same rules.  Foundations are typically used to raise funds privately to distribute to other charities.

Charities should not be confused with non profits.  Non profits have much less regulation than charities, however they are treated similarly in that they are typically tax exempt and cannot distribute profit to benefit ownership.  The biggest difference between charities and non profits is that non profits are not allowed to issue tax receipts for donations to receive tax credits!

Step 3: Legally Minimize Taxes Paid part 2

Let’s review the tops ways you can save tax.

Maximizing all tax deductions & credits – It’s common knowledge that all taxpayers are given the opportunity to take advantage of all tax deductions and credits applicable to them so let’s make use of them to help us save on our taxes! It is recommended to seek professional advice to identify all deductions and credits available.

For employees, consider opening a home based business – A small business is one of the best tax savings tool. We are talking about a simple sole proprietorship and not a big enterprise. The most significant benefit of full or part time self employment is that you will be able to increase the amount of deductions you are entitled to write off.

"Having a home based business allows the employed individual to write off part of the cost of running the business and part of the mortgage interest, heating, insurance and renovation bills and so on. Home Based Businesses can provide the opportunity to claim tax deductions in the beginning and give you cash flow later on." Read more at the www.kustomdesign.wordpress.com More tax saving strategies tomorrow!

What about tax credits?

Many tax credits can be split between spouses, and occasionally with parents and even grandparents. Splitting tax credits is especially beneficial when one spouse has little or no income. Every person in Canada is entitled to a personal exemption, where you can make up to an set amount of income without paying any tax on it. (currently $10,320 Federally and $16,775 Provincially) If one spouse is not using the personal exemption the other spouse may claim any unused portion. Some tuition and education amounts may be transferred to spouse, parents or grandparents. Disability amounts can be transferred to spouse or to parents. Age and Pension amounts can also be split between spouses, as well as transit and children’s fitness credits. The bottom line when you are splitting income, deductions and credits you want to pay the least amount of total family tax!