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“It’s not how much we give but how much love we put into giving.”
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1. Credit, Not a Deduction
Contributions can be made to many worthwhile causes and non-profit organizations, but only donations to registered charities qualify for an income tax credit. Although they are often called “tax deductible,” they qualify for a non-refundable tax credit, not a deduction. For more information, check the Canada Revenue Agency (CRA) Donations and Gifts, which is Line 349 of the General Income Tax and Benefit Guide.
In general, you can get a credit for all donations to registered charities, up to 75% of your net income. In the year of death (and going back one year), the limit is 100% of net income.
Payments for raffles, dinners, and other events are not usually eligible for an income tax receipt. In the case of a payment for a dinner or similar event, only the amount over and above the cost of the dinner itself qualifies for the receipt. Participants at such events should get a receipt for this amount.
Donations are calculated on Schedule 9, and then on Schedule 1 (Federal Tax) and Form 428 (Provincial Tax).
From 2013 until 2017, there is an additional credit for new donors: the First-Time Donor’s Super Credit. This adds 25% to the rates used in the calculation of the tax credit for up to $1,000 in donations, (which must be in money, not in-kind).
2. Keep Receipts
The receipt should have the charity’s name and registration number, date, serial number, amount donated, donor’s name, and be signed on behalf of the organization.
The receipts also should have the website address of the Canada Revenue Agency www.cra-arc.gc.ca/charities. Anyone can look up information on this website about charities in general, or any specific registered charity.
If paper filing your income tax return, you need to include your receipts. If electronically filing, save your receipts in case CRA asks for them later.
3. The $200 Rule
To encourage donations, the federal and provincial governments provide a two-tiered credit system. Add up all your donations. The amount up to $200 qualifies for a tax credit at the lowest tax rate. The amount over $200 qualifies for a credit at the highest tax rate.
When the federal and provincial programs are combined, taxpayers reduce their taxes by about 25% of the total donated up to $200. (The exact amount varies by province.)
For the amount over $200, the saving is about 45%, which again, varies by province.
Note that starting in 2016, the highest federal tax rate is increasing to 33% for income over $200,000. Donations will also qualify for that highest rate, but only for the amount of income that is over $200,000, and only for donations made in 2016 and after.
The CRA has a handy feature, the Charitable donation tax credit calculator, which will instantly calculate your total tax credit, based on the amount of the donation and your province of residence.
Because the credit is higher for the amount over $200, there is a benefit to combining spouses (Tip # 4), and to carrying forward (Tip # 5).
4. Combine Spouses
Donations made by one spouse / common-law partner can be claimed by either one. To maximize the credit, all donations should be lumped together. It doesn’t matter by which person, they can use the credit as long as they pay taxes.
5. Carry Forward
Some or all of your donations may be carried forward for up to five years. This should be done to take advantage of the higher credit over $200. Also, donations made in years of low income or when other credits are used (so no taxes would be paid anyway) should be carried forward. Also, until 2017, carry forward to take advantage of the First-Time Donor’s Super Credit. Finally, any donations over the 75% net income limit should be carried forward.
Many computer tax programs automatically suggest a carry forward when no federal taxes are payable. Check if provincial taxes are still payable; if so, consider overriding the program to include donations to reduce provincial taxes also to zero.
6. Donations at Work
Remember to claim donations made through your workplace; these are recorded in Box 46 of the T4 slip from your employer.
As well, include donations made through pension or other income (Box 46 of T4A slips). Also, less commonly, through investment income on Box 48 of T3 slips, Box 103 of T5013 slips, and Box 13 of T5003 slips.
7. Donations of Stocks
New rules encourage the donation of publicly traded securities (stocks, bonds, etc.) that have appreciated in value. There is now no capital gains tax on such gifts. This could be quite a benefit, as you get the tax credit on the higher amount, but do not have to pay any tax on your gain. Check with your charity about how to make such a gift. For more information, see the CRA’s Gifts and Income Tax, and Gifts of Publicly Traded Shares and Stock Options, as well as Capital Gains.
8. In-Kind Donations
A recent survey by Statistics Canada found that almost everyone (94% of those aged 15 and older) makes financial or in-kind charitable donations. In-kind donations are commonly items such as clothing, toys, household goods, or food. Other examples include valuable art or antiques.
CRA does allow a tax credit for gifts of property (but not for gifts of services). In order to get a tax credit for in-kind donations, you must have a receipt from the charity showing the “fair market value” of the gift.
In general, don’t expect a receipt for donations of old clothes, furniture, etc. You may be able to get a receipt for donating more valuable items. For anything worth more than $1,000, CRA usually expects an independent appraisal. For more information, see the CRA’s Gifts and Income Tax, and Gifts of Shares, Stock Options, and Other Capital Property, as well as Capital Gains.
9. Avoid Scams
Some people donate to charities with the temptation of receiving credit for more than they actually donated. Do not run the risk of having all your donations disallowed. If it seems “too good to be true,” it probably is. Give to give, not just for an inflated tax break.
10. Special Situations
There are special rules for donations of cultural and ecological gifts, and for artists who donate from their inventories. If you have partnership income and receive a T5003, T5013, or T5013A slip, then see Charitable Donations and Gifts – Schedule 2.
And, don’t forget the new First-Time Donor’s Super Credit.