When most people think of charitable donations, they tend to associate them with giving back, smiling faces, and feelings of contentment. But do you know that aside from internal benefits, donations are tethered to tax credit as well? I say that’s all the more reason to donate!
So how much do charitable donations reduce taxes in Canada? Stick around to find out!
How Much do You Get Back in Taxes for Charitable Donations?
Thanks to the Great White North’s generous tax credit system for charity donors, Canadians can yield a tax break from donating to their favourite organizations, as donations are one of the things you can claim on your taxes in Canada.
Accordingly, the Canada Revenue Agency’s (CRA) Charitable Donation Tax Credit (CDTC) can go up to 33% of the donated amount on a federal level. Then, depending on your province of residence, you can also get up to 24% back in provincial tax incentives.
But let’s backtrack a bit. What even is a tax credit? Well, it’s an amount that is deducted from the taxes you owe to the government (not the same as tax deductions). In Canada, there are refundable and non-refundable tax credits. The CDTC belongs to the latter, and as such, is only used to reduce the amount of taxes you owe.
Therefore, you can claim a 15% credit on the first $200 of donations made in a year and 29% on any donations above that amount.
How much do you get back?
The amount you get back from your donation depends on your province or territory and the amount of your donation. For example, let’s say you made a $500 donation to a charity in Alberta. The federal government would allow you to claim:
- 15% credit on the first $200 ($30)
- 29% credit on the remaining $300 ($87)
Then, the Alberta government would allow you to claim an additional 21% credit on the entire amount, which would be $105. In total, you’d receive $222 back – almost half of your original donation!
However, the maximum credit you can claim is 75% of your net income (unless you’re a member of perpetual poverty).
Which donations are tax-deductible?
It’s essential to remember that donating to just any charity won’t guarantee you a tax break. In fact, to be eligible for the donation tax credit, the donee (receiving organization) must be a registered charity. To determine whether it is, head to the CRA charities listing of all registered associations, corporations, and organizations.
Who Qualifies for the Donation Tax Credit?
Anyone who makes a donation to a qualifying donee is eligible for the CDTC. A great thing about donations is that even if you’re strapped for cash, you can still help out in other ways that don’t involve money, like donating:
- Cultural gifts
- Ecological gifts
- Insurance policies
Remember that if you receive something in exchange for your donation, you must subtract the value of the gift from the amount you donated to be able to claim tax benefits in Canada.
Moreover, you’re also able to combine your donations from the previous five years, pool them, and claim them in the same tax year. Even if the combined donation credit is over 75% of your net income, you’ll still receive a tax return.
What Information is Required on the Donation Receipts?
You can claim your credit by filing your annual taxes, along with the Schedule 9 form. This form will ask you for receipts and other documents, like pledge forms.
Tax receipts for donations must contain several key elements, such as:
- Charity name and address
- An official statement for the receipt
- Receipt’s serial number
- Charity’s registration number (available on the CRA site)
- Donor’s name and address
- Receipt’s place of issuance
- Day of issuing the receipt
- Day/year of receiving the donation
- Gift amount
- Any advantage received by the donor (value and description)
- CRA’s name and website address
- Eligible donation amount
- Signature from the registered charity
- Brief description of the gift (for non-cash donations)
- Appraiser’s name and address (for appraised non-cash donations)
Although charities usually send their receipts within 30 days of the donation, you can claim donation credits up to five years after you’ve donated. And since the CRA might ask to see your receipts, cheques, or bank statements, you should keep them for at least five years.
Transferring Your Donations to Your Spouse or Partner
Fortunately, you can transfer some or all your donations to a spouse or common-law partner. All you need to check is that it doesn’t affect your tax refund or balance owing. If it doesn’t, you can pool your donations and claim them on one return. By doing so, you’ll get more credit, since the overall donation amount will be higher and subject to higher returns.
As I already mentioned, since you get back 15% of the first $200 and 29% of the rest, you’ll get a larger amount subject to the 29%, resulting in more credit. In addition, once your province applies the provincial part of the donation, your credit will grow even more.
Does Claiming Charitable Tax Credits Have an Effect on the Charity?
But will your claiming tax credits take money away from the charity? Luckily, no! Claiming a donation tax credit doesn’t have any effect on the donee, and it doesn’t reduce the amount of money they receive. In fact, the tax credits are merely an incentive for Canadians to give more to charities, as it makes the experience positive and cost-effective.
However, if you want the charity to make the most out of your donation, you might even consider adding your charitable tax credits to your original donation.
Charities to Donate to in Canada
Out of the many outstanding CRA charities, it can be challenging to choose where to donate. Here are some of my top picks to give you an idea:
- Calgary Food Bank is a non-profit organization that provides food assistance to those in need. They operate through a network of 41 food link partners and feed over 100,000 people each month.
- Boundless School is a charity that provides educational programming and support to children and youth. They offer a variety of programs and services that are designed to help young people reach their full potential through outdoor adventures.
- Bruce Trail Conservancy is a charity that works to protect and preserve the Bruce Trail, Canada’s oldest and longest marked footpath that runs along the Niagara Escarpment in Ontario.
- CanadaHelps is an online platform that makes it easy for people to donate to registered charities. They provide a variety of services that facilitate donating and fundraising and make it convenient for the average Canadian.
- Chalice Canada is a registered charity that aims to end poverty and injustice by working in partnership with poor communities around the world. They provide thousands of people with access to education, health care, and economic opportunity.
So how much do charitable donations reduce taxes in Canada? Well, it can even go up to 50%. Donating to a registered charity can have a significant impact on the lives of those in need and help you reduce your taxes simultaneously! When making a donation, be sure to get a receipt so you can claim credits.
Remember, every donation makes a difference. Happy giving!
Yes, you can. And since many shelters operate exclusively on donations, your dollar will surely help.
Many organizations provide receipts for donations above $10 or $20, but this is up to the individual charity.
Legally, there is no minimum donation for a tax receipt in Canada. However, some organizations only provide receipts for donations above $10 or $20.
If your church is used solely for educational and religious purposes, you can claim non-refundable tax credits.
Donations are considered taxable income only if the donor gets something back in exchange for the donation.
The CDTC in Ontario is 5.05% for donations up to $200 and 11.16% for those over $200.
Churches and other religious institutions are tax-exempt if they can prove to be creating public benefit. Most churches do, and they hold the CRA charitable status under the Income Tax Act.
Yes, you can. You can pool your donations for up to five years and pay them all together to take advantage of the higher tax credit.
A non-refundable tax credit is an amount that is deducted from the taxes you owe to the government. You can only use this type of credit to reduce the amount of taxes you owe to zero.
You can claim up to 75% of your annual net income in donations.