Do Charitable Donations Reduce Taxable Income in Canada?

What are Charitable Tax Credits?

If you make charitable donations to registered charities, the federal government of Canada allows you to claim a non-refundable charitable tax credits. 

A tax credit is a reduction in the taxes you owe to the Canadian federal and provincial governments. In the case of charitable tax credits, this means that when you make a donation, a certain percentage of your donation comes back to you in the form of a tax refund, not extra income added to your next paycheck.

Who qualifies for the Donation tax credit?

The charitable donation tax credit is available for anyone who makes a donation to a qualifying donee. A donation is defined as a gift for which no consideration is given in return. Your donation can be money, or it can be anything else of value such as property, stocks, cultural and ecological gifts, etc. 

If you receive something in exchange for your donation, such as tickets to a show, then the value of what you received must be subtracted from the amount you donated and you can only claim the charitable tax credit for the difference. 

How much do you get back in taxes for charitable donations?

You can apply charitable tax credits directly to your taxable income. As of 2016, the charitable tax credit is 15% of the first $200 you donate and 29% on any amount over that limit for donations made by an individual taxpayer. The credit can reach under certain rules 33 percent if you are in the highest tax bracket. All provinces also have similar credits, which fluctuate between 4 percent and 24 percent. 

What is the maximum charitable deduction for 2021 in Canada?

The charitable donation credit can reduce your taxes by a lot, but the most you can claim in one year is 75% of your net income.

You may be able to carry forward charitable donations from previous years. For example, if your charitable donations are more than 75% of your net income, you can claim charitable donations more than this amount up to 5 years later.

Which donations are tax-deductible?

To be eligible for the donation tax credit, the organization receiving the donation “must be a registered charity,” says John Gillani, a Calgary, Alberta-based certified management accountant. You can check to see if a charity is registered on the Canada Revenue Agency (CRA) website.

An example of a registered charity would be the Canadian Cancer Society (CCS). 

The CCS can issue charitable donation receipts to Canadian tax filers who donate money or publicly listed securities. But, non-profit organizations that are not registered, cannot issue donation receipts.

So donors need to make sure they donate to an organization registered with the CRA.

Eligible charitable donations for charitable tax credits include:

• Money donated to a charitable organization
• Publicly listed securities donated to charitable organizations
• The excess value of any non-cash property over $500 donated to charitable organizations

How do I claim the charitable tax credit?

You can claim charitable tax credits when filing your annual taxes by filling out the Schedule 9 form. To do this, you need to have official donation receipts and any other supporting documents. This can include cheques, pledge forms, receipts, and bank statements.

How can I get a list of my charitable donations?

Each charitable institution will send you a tax receipt prior to the income tax due date of your total donations for the tax year. Keep in mind that CRA might request a proof of the donations since charitable donations are on the top of the list for post-assessments. You will be required to provide a tax receipt. CRA will not accept a copy of your original bill of payment.

If you contribute to donations through your employer or pension, you will need to check your income tax slips; T4, T4A, T3, T5013 slips, or on partnership financial statements.

Required information on donation receipts

Official donation receipts for income tax purposes must contain the following elements:

• A statement that it is an official receipt for income tax purposes
• Name and address of the charity as on file with the CRA
• Charity’s registration number
• Serial number of the receipt
• Place or locality where the receipt was issued
• Day or year donation was received
• Day on which the receipt was issued if it differs from the day of donation
• Full name, including middle initial, and address of the donor
• Amount of the donation
• Value and description of any advantage received by the donor
• Eligible amount of the donation
• Signature of an individual authorized by the charity to acknowledge donations
• Name and website address of the CRA

These details must also match what the CRA has on file in its List of Charities and Other Qualified Donees.

Charities usually send receipts within 30 days of the donation. But, you can claim charitable tax credits up to 4 years after you make your charitable donations.

How long do I need to keep donation records?

It’s best practice to keep these for at least 6 years in case CRA asks to see them.

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 case the CRA requests it.

Provincial charitable tax credits

On top of the tax credits you can receive at the federal level, you can also receive provincial tax credits. Each province has its own charitable tax credit policies.

For example, let’s say you donated $200 in Alberta. You would receive your $30 federal tax credit. But you would also receive a $20 provincial tax credit because Alberta offers a 10% tax credit on the first $200 donated. So for that $200 donation, you would receive a $50 tax credit.

So be sure to get familiar with your province’s charitable tax credit policy.

Donations from previous years

Since the charitable donations tax credit is greater for donations higher than $200, it may be worthwhile to accumulate donations and claim them all together in the same year. There are two ways to accumulate donations: you can combine them with your spouse’s on a single tax return or you can claim donations from multiple years together in the same year. Donations can be carried forward for up to five years.

If you need to know if you have claimed donations in previous years, you can find out using the CRA My Account online service. Once you log into your account, click on the tax returns tab at the top of the page. From there, you can view your tax returns from previous years. Look at line 349 on your previous T1 General tax return prior to 2019 or line 34900 of your Income Tax and Benefit returns of 2019 and onward to determine whether you have claimed donations for each of the past five years.

Can I transfer my donation credits to my spouse or common-law partner?

Yes, charitable donations are flexible in how they’re claimed. If claiming your donations will not affect your balance owing or refund due to low income or due to claiming other deductions, you can transfer your all or some of your donations to your spouse. 

Jennifer Gorman, a Social Experience Manager at TurboTax Canada, has given some examples on how to maximize your donation credit by giving the following examples:

Penny is an animal lover. She donated $200 to the local SPCA in April. Her husband Jim made a one-time donation of $200 to the same shelter for Penny’s birthday in May.

If Penny claims her donation on her return and Jim claims his on his return, the credit works out to $30 each – $200 X 15% = $30 – for a total of $60.

But there’s a better way.

Because donations can be pooled for both spouses, Penny and Jim can earn themselves a bigger credit by combining the two amounts.

If one spouse claims the total amount, the credit works out to be $28 more. 

The first $200 remains at the 15% mark ($30) but the next $200 is credited at 29% ($58) – $30 + $58 = $88.

Once the provincial part of the donations credit is applied, the credit grows even more. 

Provincial rates vary but in Ontario, for example, the $400 combined total yields a credit of $32.42. This means that Penny and Jim’s $400 not only did a lot of good for the local shelter, it also produced a tax credit of $120.42.