Top Ten Canadian Tax Tips for Charitable DonationsBrian Jang ON January 4, 2018
Many of us like to give to charity when we can because it’s a great way to help our communities and those in need. While the purpose of giving is obviously to help the recipient, it’s worth noting that there are benefits for the giver as well (aside from just making you feel good). So how do you benefit from helping others? Read on for the top tax tips for your charitable donations.
To Whom Can You Donate?
Well, frankly, you can donate to anyone. There are many, many wonderful organizations to whom you can contribute, but if you want to be eligible for a tax credit, you will want to contribute to a registered charity. This is important because only contributions to registered charities are taken into consideration.
What Can You Claim?
Although you will usually see declarations of your contribution being “Tax Deductible,” it is actually not a deduction, but rather a tax credit, and the amount that you can claim is not necessarily the amount you have contributed. If, for example, you receive a thank-you gift in recognition of your donation, the claimable amount is equal to your donation minus the fair market value of the gift. So, if you make a contribution of $200 and receive a gift that is valued at $50, the claimable amount of your donation will be $150.
The amount that you can claim is also limited by your income, and this is best discussed with a qualified accountant. You are able to claim up to 75% of your net income. In the year of death and one year prior, that amount can be up to 100%. Further, from 2013 to 2017, new donors are eligible for the First Time Donor’s Super Credit, which adds 25% to the rate used for the calculation of your credit, up to $1,000.
Above and Below $200
The federal and provincial governments want to encourage you to donate. To that end, they have instituted a two-tiered system, with the $200 as the dividing line.
Add up all your donations to determine if you gave more or less than $200. Anything up to that cutoff will qualify for a tax credit at the lowest tax rate, while a total of more than $200 qualifies for a deduction at the highest tax rate.
Combining the federal and provincial programs, you can reduce your taxes by approximately 25% of the total for donations up to $200. The exact amount varies by province. If your donations surpass $200, the savings equal roughly 45%, again varying by province.
Keep Those Receipts!
If you are paper filing your taxes, you will need to include your receipts. If you are submitting your taxes electronically, you will still need to keep the receipts in the event that the CRA asks to see them at a later date.
The receipts should include the charity’s name and registration number, serial number, date, and amount donated. It should also include the donor’s name and be signed by someone authorized to do so on the organization’s behalf, as well as the website address of the CRA.
Putting it All Together
Spouses should combine their donations, given that the credit is higher for amounts over $200. It doesn’t matter which spouse claims the credit, so long as they pay taxes. This will allow you to maximize your credit.
Similarly, you are able to carry forward some or all of your donations up to a maximum of five years. This can be done to take advantage of the higher credit for donations over $200. It should also be done for donations over the 75% income limit.
Other Types of Donations
Finally, keep in mind these other types of donations from which you might benefit:
- Donations at work. Don’t overlook donations made at the workplace. This also includes donations made through your pension and through other income such as investment income.
- Donations of stock. You may donate publicly traded securities such as stocks and bonds, with no capital gains tax. This can be of great benefit, as you receive the tax credit on the higher amount without having to pay tax on your gain.
- In-kind donations. These are donations of items such as clothing, household goods, toys, and food. You can claim a credit for gifts of property (but not services). To be eligible, you must have a receipt from the charity stating the fair market value of these items.
Gifts that Keep Giving
Making charitable donations is always wonderful for the recipient, but don’t forget that you can benefit as well. Plan ahead to be able to increase your donation, possibly by putting aside a given portion of your pay every two weeks, or every month. By increasing your donation, you are not only doing more to help others, you are potentially becoming eligible for a larger claim, and that’s a win for everyone.