# charitable donations vs. RRSP tax shelter



## the-royal-mail (Dec 11, 2009)

In the past I contributed money to my RRSP, typically in amounts of $2K per year. Generally what I noticed was that this would give me a refund of $800 at tax time. Nice.

I am not interested in topping up my RRSP at the moment but was thinking about donating money to a charity I like. Will donating $2K to this charity yield around the same amount of tax refund as sheltering the same amount in my RRSP? Does donating $2K to a charity reduce your taxable income in the same way an RRSP does?


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## Robillard (Apr 11, 2009)

Donating money to a registered charity provides you with a tax credit (non-refundable?) whereas contributing to an RRSP actually reduces your taxable income in the year that you claim the contribution. The donation tax credit differs from other tax credits in that most tax credits are applied solely at the lowest marginal tax rate. For example, the federal and provincial basic personal exemptions are applied at the 15% marginal federal rate and whatever the lowest income tax rate is in your province respectively. The donation tax credit is applied at the lowest marginal rates for the first $200 of donations, and then at the highest marginal rates for donations above $200 (subject to certain limitations).

For example, since I live in BC, if I had donated $2,000 to charity in 2009, I would receive a tax credit of 20.06% on the first $200, and a tax credit of 43.7% on the remaining $1,800 for a total reduction in taxes payable of $826.72.

Incidentally, it is now too late to make charitable donations for taxation year 2009.


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## the-royal-mail (Dec 11, 2009)

That's interesting. The end result seems to be very similar to the tax refund one gets when the money goes into an RRSP, though the calculations are vastly different.


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