Keeping the Taxman Away from Your Holiday Party - Tax Tips for Year-End Giving
By: Jennifer Hamilton CFP
This is the time of year our natural instincts lead us to want to celebrate with family and friends. Most of us indulge in a sort of seasonal giving orgy, forgetting each year that we'll wake up with the post holiday financial hangover in January. It seems almost inevitable, but it's one thing to have overindulged financially to bring happiness to your friends and family - do you really want to invite the taxman to your party too?
Here are some ideas for great holiday gift giving that will leave the taxman thinking you're a Scrooge!
Don't Pay GST or PST on Your Gifts
Typically we think primarily of reducing income taxes, but we live in an environment where our federal Goods and Services Tax (GST) is 6% and Provincial Sales Tax (PST) of up to 8% in some provinces is laid on top of that. Gift baskets filled with items such as fruit, coffee, tea, herbs and spices, popcorn, bread, cheese, tinned fish, condiments, sauces, mustard, and vinegar would not be subject to GST assuming that any taxable part of the arrangement, such as the basket itself is not more than 10% of the value as a whole. Other GST free gifts include bus tickets or subway tokens, and education such as music lessons. A platter filled with fruits or crackers and cheese sold by the grocery store is subject to GST, but a platter with items bought and arranged by you is not.
Items purchased from non profit or charitable organizations are also GST free. You can support your community by shopping at church bazaars and craft sales or buying tickets for artistic events such as plays and concerts.
Avoiding sales taxes may mean giving homemade and handmade gifts. Of course, these gifts have to meet your uncompromising standards, but that doesn't mean you can't think outside of the box - or the mall for that matter.
Reduce Our Future Tax Load
This year consider giving consumable gifts, rather than things that are likely to just end up in a landfill site. Gift cards are available for restaurant meals, spa services, a night at the movies or a day at the local museum or zoo. Most guys would love tickets to a sporting event or the entrance fee to the Sportsman or Boating Show, along with some extra cash for treats. For the gardener on your list, a gift certificate for the local nursery will be a hit and golfers always appreciate the opportunity to play! Lessons and classes are great for people of all ages - cooking, gymnastics, yoga, swimming, crafts, music and dance, for example.
Charitable Donations
This time of year, giving back to our communities and helping others is top of mind. A charitable donation can be made on behalf of that person on your list who really does have everything. Some families have replaced gift giving amongst themselves with donations to support a family in need. And, of course, come income tax time there is a tax credit for your generosity!
Gifts to Employees
If you are an employer, you are allowed to give two non-cash gifts per year on a tax-free basis to your employees for special occasions such as Christmas and Hanukkah. The cost of these gifts is tax-deductible as long as they are physical gifts and not gifts of cash or near-cash such as gift certificates.
Entertaining Employees
All employers are aware of the general restriction in the Income Tax Act that the cost of meals and entertainment is only 50% deductible. But many people don't know that this rule does not apply to the costs of certain meals and entertainment expenses associated with special events such as holiday parties to which all employees at a particular location are invited.
Give Yourself 10%
Last but not least - don't forget yourself! If you haven't already started a retirement savings program, give it to yourself this holiday season. Everyone should save a minimum of 10% of their gross income to provide for their retirement. Contributing this amount to an RRSP will allow you to apply for a Tax Deduction Waiver so that you can start saving tax immediately - now that's a great gift!
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