Charitable Donation Tax Credit

by Tax Guy - Burlington Accountant on December 15, 2010 Print This Post Print This Post

If you make a charitable donation to a Canadian registered charity or other qualified donee, you may be entitled to the charitable donation tax credit.

The basic federal tax credit for donations to a registered Canadian charity 15% of the first $200 donated and 29% on amounts over $200. All provinces have similar tax credits for charitable donations.

Provincial tax credits for charitable donations work in much the same way with the lowest tax bracket applied to the initial $200 and the highest tax rate to amounts over $200.

You may claim up to 75% of your net income and any unused amounts over the 75% limit may be carried forward five years. In the year of death, 100% of the donation amount may be claimed.

What Qualifies As A Charitable Donation?

By peretxpip via Flickr

Donations or gifts to charities include cash, securities of listed public companies, life insurance policies, residual interest in trusts, ecologically sensitive land, and Canadian cultural property.

Donations of Securities

The charitable donation of certain capital property such as listed public securities, ecologically sensitive land, and bonds are not subject to the tax on the capital gain when donated after May 2, 2006.

Securities that qualify for this treatment include stocks listed on a designated stock exchange, bonds or debt of companies listed on a designated stock exchange and mutual funds. As a general rule if the stock, bond or mutual fund qualifies to be held in a RRSP or RRIF, it qualifies for the zero capital gain on the donation.

The Value & Any Benefits

When you make a donation and receive nothing in return, you have made a true gift. However, when the property given has no identifiable value or if you have received something in return (such as a round of golf, or ticket to a sporting event), the valuation of the donation becomes more complicated.

Draft legislation has been proposed that would allow for a gift at fair market value to be made, but if any advantage were received in return (such as a round of golf, or ticket to a sporting event), the fair market value of the “advantage” would be used to reduce the donation amount.

Family Charitable Donations

If you and (or) your spouse have made charitable donations, you are permitted to combine them and claim them on one return. This is particularly beneficial when your individual donations are under $200 but combined they exceed $200.

Other Resources

About The Tax Guy...

Dean Paley CGA CFP is a Burlington accountant and financial planner who services individuals and business owners locally, nationally and internationally. Dean has appeared in the National Post, Toronto Star and Metro News.

To find out more, visit Dean's website Dean Paley CGA CFP or connect via Twitter @DeanPaleyCGACFP.

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{ 14 comments }

Sam Li November 11, 2008 at 12:12 pm

What about provincial Charitable Donation Tax Credit?

Tax Admin November 12, 2008 at 4:27 pm

The provinces each have their own tax credits for charitable donations. They each work exactly the same as the federal credit, except that the amounts used to calculate the credits are the provincial tax rates. See the non-refundable tax credits on the tax rates page http://blog.taxresource.ca/tax-rates/

Brad Burton August 28, 2010 at 1:38 pm

I plan on playing in a charity golf tournament. My Question is
How much of the $85 entry fee is would qualify for a tax credit?

Tax Guy August 29, 2010 at 9:29 pm

Brad,
Probably none of it because a charitable donation involved a gift with nothing received in return. You are getting a game of golf!

If there is any donation component at all, you will receive a receipt from the charity.

robin October 20, 2010 at 11:44 pm

Dose This credit apply to donations of goods? providing they issue a tax receipt.
ie, goodwill, salvation army, value village..ect
what about food banks?

Tax Guy October 21, 2010 at 6:30 am

Non-cash donations are accepted by many charities and you can get a tax slip. There is always a question of valuation.

Claude December 15, 2010 at 2:21 pm

Who determines the valuation?

Tax Guy December 15, 2010 at 2:57 pm

It depends. For securities, the value is known. For other assets it is fair market value.

Blair Conrad December 15, 2010 at 4:52 pm

Regarding family charitable donations, you said
“This is particularly beneficial when your individual donations are under $200 but combined they exceed $200.”

It seems to be just as beneficial when individual donations exceed $200.
Really, it seems to be more beneficial, as then a full $200 is being credited at the higher rate, rather than the less-than-$200 that would be credited at the higher rate when individual donations are less than $200.

Tax Guy December 16, 2010 at 1:51 pm

But if your donations are under $200 and your spouse’s donations are under $200 then you each are only entitled to a 15% credit of the donation. Combine them and get a credit of 15% on the first $200 and 29% on the excess.

Blair Conrad December 16, 2010 at 4:44 pm

Yes. But the logic still holds even if both spouses have donations over $200. Rather than each getting 15% on the first $200, by combining you can get 15% on the first $200, and 29% on the rest.

Combining donations doesn’t become more beneficial when each spouse contributes less than $200 – as soon as the total is over $200, combining is beneficial. Regardless of how large the individuals’ donations are.

Let’s play with numbers. Suppose I contribute $150 and my wife contributes $150. Then I get a 15% credit, and so does my wife, for $22.50 + $22.50 = $45.

If we combine, then I will claim $300, so I get a 15% credit on $200, and 29% on the remaining $100 ($300 – $200 = $100). So I get a credit of $30 + $29 = $59. That’s an extra $14. Very exciting.

Now suppose we were each contributing $250. If we claim separately, we each get 15% of $200 and 29% of $50, for a total of $30 + $30 + $14.50 + $14.50 = $89.

If we combine our donations, then I claim $500. I get 15% on the first $200 and 29% on the next $300. That’s $30 + $87 = $117. That’s $28 extra. Yay.

In the first case, by combining we moved only $100 from the 15% bracket to the 29% bracket so we received an extra (29 – 15 = 14)% credit on that $100, for a gain of $14.

In the second case, by combining we moved a full $200 from the 15% bracket to the 29% bracket, so we got 14% extra credit on the $200, for a gain of $28. Of course, this is the maximum gain to be realized by combining donations.

My point is that as soon as a couple’s donations exceed $200, it’s worthwhile combining them. But the benefit doesn’t decrease once each partner exceeds the $200 mark, as your article suggested – the benefit increases until each partner is contributing at least $200, and then levels off, to top out at $28.

Tax Guy December 16, 2010 at 5:03 pm

I already understand the math.

The intent of the article is to point out planning opportunities with respect to donations already made. The issue for combining individual donations over $200 is to ensure the credit is fully used.

Blair Conrad December 16, 2010 at 7:39 pm

I didn’t doubt that you understood the math. I was more concerned that your comment that “This is particularly beneficial when your individual donations are under $200 but combined they exceed $200.” would lead people who didn’t understand the math and who individually donated more than $200 would be dissuaded from combining their donations, and would thereby lose out on their $28. I provided the long-winded examples to help those of your readers who might not understand the math.

Thanks,
Blair

anthony April 16, 2013 at 5:14 pm

Your style is unique compared to other folks I’ve read stuff from. Thank you for posting when you have the opportunity, Guess I will just book mark this site.

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