Giving to causes that are important to you is rewarding. However, when deciding to donate, it can be difficult to know where to begin. There are many aspects to consider, and having a plan in place can help enhance the impact of your donations. A well-considered charitable giving strategy can increase tax efficiency and maximize your donations to create a long-lasting legacy.

Tax Benefits of Charitable Donations

Before making a donation, it’s helpful to understand which tax benefits you’ll receive. A charitable organization can issue a donation tax receipt if it meets qualifying criteria under the Income Tax Act. A qualified donation can be made to registered charities as well as other registered organizations.

You should check with the organization you wish to donate to and ensure that it is eligible to issue a donation tax receipt. Alternatively, a list of registered charities be found on the Canada Revenue Agency (CRA) website. A charitable donation claimed personally on your tax return generates non-refundable donation tax credits, which reduce the taxes you owe. A donation made by a corporation is claimed as a tax deduction against the corporation’s income, which reduces the amount subject to tax.

Charitable Donation Tax Credits

When claiming donation tax credits on your tax return, the credit rate you receive and amount of tax savings for each dollar donated will depend on your specific circumstances. The value of the donation tax credit is determined by the donation amount, your taxable income level and your province or territory of residence:

• Donations up to $200 reported on your tax return receive a 15% federal donation tax credit. The provincial tax credit on donations up to $200 is generally equal to the lowest provincial tax rate. The combined federal and provincial credit rate in most provinces ranges between 20% and26%. For example, claiming $100 of donations will generate $20 to $26 of tax credits.
• Donations claimed above $200 receive a 29% federal donation tax credit and in many (but not all) provinces, the provincial tax credit on donations claimed over $200 is equal to the highest provincial tax rate. In Alberta, the rate on the combined credit is 50%.

A tax professional, like KWB Chartered Professional Accountants, can confirm the donation tax credit rate you’ll receive for your donations.

Maximum Amount of Donations That Can Be Claimed

You can claim donations up to a limit of 75% of the net income reported on your tax return. Net income is your total income after any tax deductions. For example, if your net income for the year is $100,000, up to $75,000 of donations can be claimed on your tax return.

The limit on donations that can be claimed on your tax return is increased in certain scenarios:

• An additional 25% of the taxable capital gains incurred on donations of capital property.
• An additional 25% of recaptured depreciation on donations of depreciable property.
• 100% of net income in the year of death and year prior (for donations made in the year of death or by a graduated rate estate within 60 months of the date of death)

Any portion of a donation tax receipt that is not used in your current year’s tax return can be carried forward and claimed in any of the following five years.

Strategies That Can Enhance Your Donation Tax Credit

Depending on your circumstances, certain strategies should be considered to enhance the donation tax credit, such as:

• If this is a high-income year, it may be beneficial to increase donations in the year to take advantage of the potentially higher donation tax credit rates available to you.
• To limit donations subject to the lower $200 tax credit rate, you can carry forward and combine small gifts from multiple years onto a single tax return. Also, consider bringing forward gifts planned for early in the new year, to include them in this year’s tax return.
• Donations made by you and your spouse (including your common-law partner) can be claimed on a single tax return. Consider reporting your combined donations on the tax return of the spouse with higher income levels, to maximize the credit rate.

More Information

• Tax Planning Considerations for Charitable Giving | Deciding What to Give
• Tax Planning Considerations for Charitable Giving | Timing Considerations

Help Navigating Tax Planning and Charitable Donations

KWB Accountants & Advisors works with business owners to help you simplify your accounting, improve your profit, and achieve your goals – including helping you navigate succession and estate planning and the potential tax implications of the choices you’re considering. Book an introductory meeting with us to learn more about becoming a client.

This blog article was prepared in collaboration with Blueprint Planning Group.