When you donate to charity, you can receive tax benefits for your donations.
But, you can’t just receive tax benefits for a donation to your friend up the street. The organization receiving the donation “must be a registered charity,” says John Gillani, a Calgary, Alberta-based certified management accountant. Registered charities include organizations such as The Canadian Red Cross or many of the amateur athletic associations. You can check to see if a charity is registered on the Canada Revenue Agency (CRA) website. If you arm yourself with information about charitable donation requirements, you can help others, while helping yourself as well.
Importance of Receipts
The CRA does not require registered charities to issue receipts for every donation they receive. Some charities have set criteria for issuing a receipt. For instance, if you donate a gift with a monetary value of more than $100 you may receive a receipt, while donors of gifts of under $100 may not receive a receipt. You do however, need an official donation receipt to claim a charity tax credit or deduction.
Unfortunately, “many scams are out there,” says Gillani. “Beware of a charity that offers to give you a receipt for more than you gave.” If you donate $500, and, in exchange, the charity offers you a receipt for $1,000, this is a huge red flag, he says.
The dollar amount you place on your tax return is the eligible amount of your donation. This is the amount you gave to a registered charity, minus any benefit you received from giving your donation. For instance, if you gave $500 to an art museum and the museum gave you tickets to an exhibit to thank you, you would have to subtract the fair market value of those tickets from that $500. If the tickets were worth $50, the eligible amount of your donation would be $450.
Federal Benefit Rates
“You receive 15 percent for the first $200 you donate and 29 percent after $200,” Gillani says. Therefore, if you donated $200 during the tax year, you would receive 15 percent of that donation, or $30 in tax benefits. If you donated a higher amount, let’s say $400, for instance, you’d receive that same $30 for the first $200 of the donation, but for the second $200 you would receive 29 percent of that amount, or $58. Altogether for your $400 donation, you’d receive $88 ($30 + $58). On your federal tax return, “these amounts work similar to a tax credit, they behave as if you had already paid the amount in tax,” Gillani says. Therefore, these donations lower your tax liability.
In addition to receiving federal tax benefits for your charitable donations, you can also receive provincial tax benefits as well. Rates and policies vary by province, but in British Columbia, for instance, you receive a portion of your donation amounts. In 2017, for the first $200 of your donations, you receive 5.06 percent of those amounts. For amounts after $200, you receive 14.7 percent of those amounts in provincial tax benefits.
For example, say you donated that same $200 and received your $30 federal tax benefit. In British Columbia, you would also receive an additional $10.12 in provincial credit ($200 x 5.06 percent). If you donated $400, you’d receive your $88 federal benefit, and you would also receive $39.52 in provincial tax benefits [$10.12 + (14.7 percent x $200)].
“The first-time donor’s super credit is new for the 2013 tax year,” says Gillani. This credit allows first-time donors to add an additional 40 percent rate to their donations made after March 20, 2013. This means, instead of receiving a 15 percent portion for the first $200 of donations, first-time donors receive a 40 percent portion. For amounts after $200, a first-time donor receives 54 percent of these donations, as opposed to only 29 percent. As a first-time donor, you may take advantage of the 54 percent rate for donations of over $200, but not for donation amounts exceeding $1,000.
Please note that the first-time donor’s super credit is only available for tax years 2013 to 2017. It has been discontinued for 2018 and beyond. The information presented here is for individuals preparing tax returns for 2017 and earlier.
In addition to keeping your receipts, it is also a good idea to hold onto any proof of payment, such as cheque stubs or bank statements.
- If you file a paper return, the CRA requires that you submit receipts and other documentation along with your return.
- If you file online, you generally do not have to submit documentation, but you should hold on to it in cases the CRA requests it.
The CRA recommends keeping income tax records and tax documents for six years. This includes all documentation related to the credits and benefits you claim.