Problem
A client has come to you and is trying to decide between two things:
• Contribute money to her RRSP; or
• Donate to her favourite charity "Save the Squirrels"
This client has $15,000 that she would either like to contribute or donate. She is unsure of the difference between a "tax deduction" and a "tax credit" - and doesn't know which is which of her choices. Tax, of course, will be the deciding factor in her decision. For discussion purposes, assume her income is $110,000 from employment, she is single with no dependents and has RRSP Room of $45,000 available. Assume a 35% average tax rate for your calculations.
How you would explain to her what each choice is (is it a tax credit or a tax deduction?) and what the difference would be for her taxes. How would you explain this? Likely, you will need to small amount of numbers (just generally) to help explain.