I was asked a question about my charitable donations post from last week. The question was, instead of the $200 in my example, what if he donated say $1,000 a year… would he be better off getting the credit each year and investing it?
For starters, lets break down the tax credit he would receive, each year or once at the end of 6 years. If you claimed your charitable donation each year you would get $262 back each year come tax time. If you saved up the receipts and filed 6 years together you would have $1,712.
If he was to receive his $262 credit each year and put it into an investment making 5% he would have $1,782, a slight increase over the $1,712 he would receive by saving up the receipts for 6 years. However, if the money went into a savings account or GIC, making 2.5%, he would only have $1,674. With either scenario, the interest earned would also be taxable unless held inside a TFSA or RRSP.
The numbers do work out better if you are fortunate enough to be able to donate $2,000 a year. At that amount, investing the $552 credit each year into a savings account or GIC at 2.5% would give you $3,526, a $74 increase over the $3,452 you would receive by claiming after 6 years. Not that the savings are huge, but at least you won’t have to hold onto your receipts!
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Savings receipt for 6 years might be a little hard, I dont think i personally would be able to keep them for six years. But in the first case it makes sense to do it 6 years later over $100 extra in tax return.