Giving feels good. It feels even better when you give strategically and get to take advantage of tax incentives. Charitable donations in Canada are eligible for both federal and provincial donation tax credits, with combined incentives of up to 53 percent!
According to Malcolm Burrows, Head of Philanthropic Advisory Services at Scotiabank, “Charitable donations are a great way for Canadians to lower their tax bill while helping others.”
Before claiming the charitable tax credit, it’s important to make sure you have donated to a qualified charity. The government lets you claim tax credits for donations to CRA-registered charities. Only these charities can issue official donation receipts needed to claim your donation tax credits. Every charity listed on CanadaHelps.org is a registered Canadian charity. Once you have your donation tax receipts, you can calculate how much you can claim with our Charitable Tax Credit calculator.
What are Charitable Tax Credits
Canada has a two-tiered credit system, which means:
- You get a 15 percent non-refundable federal tax credit for the first $200 of donations for the year.
- You get a 29 percent federal tax credit for donations beyond that $200 threshold.
In addition to that, each province offers its own charitable tax incentives that can be claimed along with federal tax credits, helping you get more money back. You can claim the amount shown on your charitable donation receipt. The maximum donation amount you’re able to claim in a year is 75 percent of your net annual income. For gifts of certified cultural property or ecologically sensitive land, you may be able to claim up to 100% of your net income.
How to Maximize your Donation Tax Credits
You can claim charitable tax credits for all donations made by December 31st of the applicable tax year. You don’t have to claim all the donations in the same year. If you donate small amounts in the year, consider combining multiple years’ worth of donations (up to a maximum of five years) to push you over the $200 threshold, and take advantage of the higher tax credit (29%). Also, consider making an extra contribution in December rather than early in the new year so you don’t have to wait until the following year to claim the credits.
You can combine your receipts with your spouse and have only one person claim the entire donation amount in order to maximize the amount subject to the higher tax credit rate. The higher-income spouse should claim all the donations since the credit reduces federal and provincial high-income surtaxes. You can also split a donation made by one partner between both in any proportion. You can put each other’s unclaimed charitable donations from previous years toward your returns.
Benefits for first-time donors
If you or your spouse have unclaimed donations from past years, you may be eligible for the First-Time Donor’s Super Credit. This credit gives first-time donors and those who haven’t claimed a charitable donation in the last five years an extra 25% on their tax credit. The FTDSC is applicable for cash donations of up to $1,000 made by an individual or couple (combined) between 2013 and 2017. This works out to be the equivalent of a tax credit of 40 percent on your first $200 in donations, and 54 percent on amounts above $200!
How to Eliminate Capital Gains Tax and Give More
Donation of securities or mutual fund shares is the most tax-efficient way to give and reduce your tax bill. When you sell a mutual fund or security, you pay a capital gains tax on the value increase of your investment. However, if you donate the securities directly to your charities of choice, you will receive a tax receipt for the full market value of your investment and pay no capital gains tax. This allows you to give more to your favourite charities and make a bigger impact! If you own a large number of securities and aren’t prepared to donate the full value, you can also give a portion and cash-out the rest.
Remember to get a Charitable Tax Receipt
When you donate or fundraise for any registered Canadian charity online through CanadaHelps.org, you can receive an instant tax receipt or one roll-up tax receipt for all your donations at the end of the year. No matter how you choose to give, the most important thing is that you’re maximizing your donations to make the biggest possible impact on the world around you. These ideas are some of the ways you can save on your taxes and give more generously. For more information on how to increase your giving capacity, consider speaking to a financial advisor.
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