Jake Baxter donated $100,000 in cash to a Canadian registered charity. His Net Income For Tax Purposes and Taxable Income for the year is $120,000. Calculate Jake's maximum federal tax credit for charitable gifts.

Question

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In Canada, the federal tax credit for charitable donations is calculated as 15% on the first $200 of donations and 29% on any amount over $200. Jake donated $100,000, so his federal tax credit calculation would be as follows: (15% * $200) + (29% * ($100,000 - $200)) = $30 + $28,942 = $28,972. However, there's a limit on the charitable donations claim: it cannot exceed 75% of the net income. For Jake, 75% of his net income ($120,000) is $90,000. Since his donation is above this threshold, his claim is limited to 75% of his net income. The federal tax credit on $90,000 (ignoring the first $200 for simplicity, as its impact is minimal) is 29% of $90,000 = $26,100 (approximately). The closest answer provided is $26,072, which accounts for the precise calculation including the first $200 at 15%.

Jake Baxter Donated $100,000 in Cash to a Canadian Registered