Charitable Donations

There are over 86,000 registered charities in Canada that are doing exceptional work within their communities.

Giving to charity may be something you already do each year as there may be a cause near to your heart. It turns out that there is also a tax incentive, so it is not only good for the charity and community, but it is good for your taxes as well.

Below I've summarized how charitable donations impact your taxes, how the tax credit is calculated.

How Charitable Donations Impact Taxes?

When you donate to a registered charity in Canada and receive a tax receipt, this will provide you with a non-refundable tax credit. As a reminder, a tax credit is an amount that can be deducted from the amount of income tax that an you would otherwise be required to pay.?When the tax credit is non-refundable, that can be used to reduce an your income tax liability to zero, but cannot be used to create a tax refund - so in other words, this can help reduce your taxes owing.?

So how does it work?

You and your spouse or common-law partner may be eligible for a non-refundable tax credit related to the amount donated to registered charities up to 75% of your net income for the year. (In the year of death, the 75% annual donation limit increases to 100% of net income. In many cases, charitable bequests are included in an individual’s will.)

The federal amount of the credit that can be claimed is 15% on the first $200 of donations and 29% on the remaining amount. Any unused amount can be carried forward up to five years.?

Example:

From the Government of Canada/CRA:

Danielle lives in the province of Saskatchewan and donated $400 in 2013 to registered charities:

1. The federal charitable tax credit rate is 15% on the first $200 and 29% on the remaining $200. Her federal tax credit is therefore (15% × $200) + (29% × 200) = $88.
2. The provincial charitable tax credit rates for Saskatchewan for 2013 are 11% on the first $200 and 15% on the remaining $200. Therefore her provincial tax credit is (11% × $200) + (15% × $200) = $52.
3. Her combined charitable tax credit is ($88 + $52) = $140.

Tax savings

This is a non-refundable tax credit. As such, it can only be used to reduce tax owed; if you don't owe any tax, you don't get a refund. Generally, your tax savings will be equal to the amount of the charitable tax credit calculated. The following are exceptions:

• If you are a resident of Quebec and are entitled to a refundable federal tax abatement, then your actual federal tax savings will be reduced.
• If you are required to pay provincial income surtax, then your actual saving will be more than the charitable tax credit calculated as the credit will reduce both your base income taxes and provincial surtax.
• If you made a donation of publicly traded securities, you may increase your tax saving by reducing your capital gains tax.

Note, each province calculates a donation tax credit differently. Some examples with both federal and other provincial calculations from the Government of Canada can be found here.

Use this Government of Canada Calculator to test it out.

Resources:

CRA/Government of Canada Resources on Giving to charity: Information for donors.

List of charities and certain other qualified donees - basic search

Hopefully this gives you a better idea of what the charitable donation impact is on your taxes, and inspires you to continue to donate funds each year to a charity doing work you love.

In the comments below, tag or mention the charity you support, or want others to know about?