Everything You Should Know About Charitable Donation Tax Credits
You received a charitable donation tax receipt from a contribution you've made to a registered Canadian charity, now what? 🤷♂️
It's the end of the year, and you're preparing to file your annual tax return. You have tax receipts from charities you've contributed to throughout the year and know you should be doing something with them but aren't quite sure what or why. Luckily, you've come to the right place.
Here's everything you should know about charitable donation tax receipts and claiming them for tax credits!
Charitable Donation Tax Credits Explained
In Canada, the government provides a tax credit to those who've donated to registered Canadian charities and received official charitable donation tax receipts as proof. A donation tax receipt is issued by the organization you've contributed to immediately after a donation is made. If you did not receive a receipt, you might have donated to an unqualified organization or a problem might have occurred with the charity's system - in which case you'll need to contact the respective organization to claim your receipt. Once you received a donation tax receipt, you can then claim it for a tax credit.
What Is Considered A Donation?
A donation is a gift in which no remuneration has been given in return. Gifts include, but are not limited to, cash, ecologically sensitive land, property, and personal-use property, like paintings and jewelry (full list here). However, for the purpose of this article, we’ll be focusing on cash donations.
If you receive something in exchange for your donation (i.e., a ticket to an event), then the value of what you receive must be subtracted from the amount of your initial contribution. You can only claim a charitable donation tax credit for the difference.
Who Can Issue Charitable Tax Receipts?
Not everyone can issue charitable tax receipts. In fact, to qualify for a charitable tax credit, the recipient of your donation must be a qualified donee. A qualified donee is a registered charity or one of several other public organizations, listed on the Canada Revenue Agency website, like an amateur athletic association. To find out whether or not the organization you plan on contributing to is qualified to issue donation tax receipts, research their profile on the CRA’s database.
Federal And Provincial Tax Credit Rates
Now that we’ve discussed what a donation is and what type of organizations can issue charitable tax receipts, it’s time to dig into the tax credit rates for cash donations. Both the federal and the provincial government have different rates, and to calculate your full tax credit requires calculating your federal tax rate and your provincial tax rate. The federal rate remains consistent across the country, whereas the provincial tax rate fluctuates depending on your province.
Federal Tax Credits
At the federal level, the charitable tax credit rate is 15% on your first $200 and an additional 29% on the remaining amount donated.
Example: If Becky’s income is less than $200,000 and she donates $500
If your taxable income is over $200,000, the federal tax rate is calculated somewhat differently and depends on how much you've contributed.
Provincial Tax Credits
Provincial tax credits work similarly, except for the fact that they use different rates. Donors are issued a credited amount for donations up to $200, ranging from 4% to 20%, depending on their province. For the remaining amount, after the initial $200, donors are credited 11% to 24%, again depending on their location.
Continuing with the previous example: If Becky is from Ontario, her provincial tax credit is calculated as follows
Becky from Ontario's total tax credit is, therefore, her federal tax credit ($117) plus her provincial tax credit ($43.58); $160.58.
However, in a new example: If Becky is from Quebec, her provincial tax credit is calculated as follows
In this new example, Becky, from Quebec's total tax credit is different. Although her federal tax credit remains the same, her provincial tax credit is slightly higher, and therefore, her overall tax credit is approximately $229 ($117 + $112).
When To Claim Your Charitable Donation Tax Credits
Once you’ve estimated your return, you should then establish when you’re going to claim your tax credit. According to the Canada Revenue Agency, in any year, you may claim:
Donations made by December 31 of the applicable tax year;
Any unclaimed contributions you've made in the previous five years; and
Any unclaimed contributions made by your spouse or common-law partner in the year or last five years.
It might be more beneficial to carry your donation tax credits forward and claim them in another year. Pushing tax credits forward makes sense if you don't pass the $200 threshold in a given year, where the tax credit tends to be more significant. Or if you're expecting to owe fewer taxes than the donation tax credit would award. However, at the end of the day, when you decide to claim your charitable donation tax credits is entirely up to you, as long as you do not exceed the 5-year timeframe.
Key Takeaway 🔑
So, the next time you make a donation to a qualified donee, make sure you receive and keep your official donation tax receipt. Although giving is selfless, it’s always nice to receive a credit you can use to lower your taxes.