You probably know that you can receive a tax break for charitable donations. But that's not the only contribution you can make to worthy causes and receive a tax benefit. You can also receive a tax break for your political contributions.
Charitable Donations vs. Political Contributions
While you receive a tax benefit for making federal political donations, and the percentage is higher, it might not be as large as what you see with charitable donations depending on how much you contribute.
With charitable donations, you benefit from saving your receipts over 6 years since the percentage you receive back is higher on money contributed over $200. The more you donate, the larger your benefit.
Federal political contributions are the opposite. The percentage you get back is higher on the first dollars contributed and reduces the more you contribute. So, while generosity toward charity is encouraged by the system, the government doesn't want you to get too involved with your federal political contributions.
The first $400 you contribute for political purposes is eligable for a 75% credit, the next $350 is a 50% credit and the final $525 receives a 33.33% credit. $1,275 is the maximum amount that you can claim a tax credit on. The maximum credit works out to $650.
With this tax structure, you’ll get the most for your money by contributing up to $400, after that, your federal political contributions begin costing you more of your own money.
Of course even the lowest tax credit (33.33%) is higher than the highest credit you receive from charitable donations (29%). However, even so, you have a larger incentive over time to donate to a charity, since there is a higher allowable donation.
Maxing out your political contribution works out to about a 51% overall credit, so it may not be a bad idea if you really want to support a federal party.
What Constitutes a Federal Political Donation?
If you decide that you want the tax break, you need to make sure that you meet the eligibility requirements. In order for your contribution to be deductible you or your spouse (or common-law partner) must make the donation to a registered federal political party, or to candidate running for election to the House of Commons.
It's also important to note that there are proposed changes that would make your eligible amount for deduction subject to a test related to advantages you receive as a result of your donation. So, the eligible amount must exceed the fair market value of an advantage, such as property, use, service, or other benefit.
When you fill out your tax forms, you will perform a calculation with the total amount of contributions you have made. You enter the total amount of your federal political contributions on line 409 of Schedule 1, and then use a chart on the federal worksheet to calculate your credit for line 7. If, however, you contribute the maximum amount of $1,275, there is no reason to use the chart; just enter the maximum $650 credit.
If you believe in a federal political party, or a candidate, you can make a donation and receive a tax benefit. Combine this with your tax break for charitable contributions, and you can do a lot of good while receiving a financial break of your own.