The Basics
The Income Tax Act provides for a nonrefundable tax credit for eligible donations made to certain qualified donees. Nonrefundable tax credits can be used to reduce taxes payable, but
they cannot be used to create a refund.
Generally, you can claim part or all the eligible amount of your gifts of money or other property to a qualified donee, up to the limit of 75 per cent of your net income for the year, provided you receive an official donation receipt from the qualified donee.
The tax treatment of donations is the same whether the donation is made by an individual or a corporation.
Although some taxpayers and tax preparers may take the position that charitable donations made by a corporation are ordinary business expenses incurred to promote business
operations, that aggressive position is generally challenged by CRA auditors.
What Gifts Can You Claim?
You can claim a tax credit based on the eligible amount of your gift to the following qualified Canadian donees.
- Registered charities
- Registered journalism organizations (RJO)
- Registered Canadian amateur athletic associations
- Registered national arts service organizations
- Registered housing corporations resident in Canada set up only to provide low-cost housing for the aged
- The United Nations and its agencies
- Universities outside Canada that are registered with the CRA—the student body of which ordinarily includes students from Canada
- Registered foreign charities to which the Government of Canada has made a gift
- Gifts to government bodies
- Gifts to the Government of Canada, a province, a territory, registered municipalities in Canada, or registered municipal or public bodies performing a function of government
in Canada.
Donations to US-based charities can be claimed in limited circumstances that are beyond the scope of this article.
To assist donors in determining which organizations may issue official donation receipts, CRA maintains a publicly available list of qualified donees at canada.ca/charities-giving.
Note that charitable donations do not include contributions to political parties but contributions to registered federal political parties and candidates in a federal election are eligible for a separate federal tax credit equal to some portion of the actual contribution.
Gifts of Cash
- The first $200 in cash gifts generates a 15% credit.
- Amounts in excess of the $200 threshold generate an additional credit that is income-dependent. That is, to the extent you have income subject to tax in the top bracket (currently $235,675), a credit of 33% applies to donated amounts in excess of the $200 threshold, while a credit rate of 29% applies to the remainder.
That is best illustrated with an example.
- Let’s assume you have $250,000 taxable income and donate $25,000.
- The first $200 of your donations generates a credit at 15%. The next $14,325 ($250,000 – $235,675) will be eligible for a 33% credit and the remaining $10,475 will generate a 29% credit.
- The total credit available on your $25,000 donation would therefore be $7,795 ($200 x 15% + $14,325 x 33% + $10,475 x 29%).
Gifts in Kind
Gifts in kind are noncash gifts of tangible property (not services). Those can be gifts for which you received no valuable consideration or those for which you received an Advantage (as long as CRA is satisfied the transfer of property was made with the intention of making a
gift). Generally speaking, Advantage is the total value of any property, service, compensation, use, or any other benefit you are entitled to receive as partial consideration for, in gratitude for, or in any other way related to the gift.
The tax credit for gift-in-kind donations is computed on the Eligible Amount, measured as the amount by which the fair market value (FMV) of the gifted property exceeds the amount of the Advantage (provided that the FMV of the Advantage does not exceed 80 per cent of the FMV of the transferred property).
The Advantage may be contingent or receivable in the future—either to you or a person or partnership not dealing at arm’s length with you.
- For example, assume you donate some office equipment worth $500 to the local playhouse, a registered charity. In gratitude, the company provides you with a pair of tickets to a show valued at $200. In that scenario, you are deemed to have received an Advantage of $200, making the Eligible Amount of your donation $300 ($500 – $200).
When donating capital property, it is important to note that any capital gain you have made on the property since you acquired it may be subject to tax.
The qualified donee can issue an official donation receipt for the amount of the Advantage. The receipt should show the FMV or deemed FMV of your gift. To establish the FMV of the
donated property, you may need to have the property appraised. The appraised FMV is also used in calculating any capital gain or loss you may have from donating your property.
The flexible rules for charitable donations provide for some tax-planning opportunities as between spouses, and as to the timing of claiming charitable donations.
Donations Made by Spouses
Spouses who make individual charitable donations have the choice to claim their respective donations on each of their own returns or to combine them into a single claim on one spouse’s return.
Since larger donations receive more favourable treatment, it can often be advantageous for spouses to combine their donations onto a single return.
Determining which spouse should claim the total donations is a decision that requires some consideration. For instance, since the tax credit for donations is nonrefundable, if the amount of the potential credit would exceed the taxes payable for one spouse it would
likely be more advantageous for the spouse with the higher taxes payable to make the claim.
Carrying Donations Forward
Claiming charitable donations is discretionary in that they may be claimed in the year of donation or any of the 5 subsequent years. Therefore, a donation made in 2023 could be
claimed in the 2023 taxation year or in any of the 2024‒2028 taxation years.
That being a discretionary claim, you can decide the year in which you want to claim your donations, depending on what is most advantageous for your particular circumstances. As amounts over $200 generate greater tax benefits, it is sometimes beneficial to accumulate
donations for several years to make one larger claim.
- If for example, you regularly donate $200 per year, claiming that annual donation each year will reduce your Federal taxes by $30 ($200 x 15%).
- Over a 5-year period you will have donated $1,000 and received a total credit of $150. If, instead, you make no claim for 4 years and then claim all $1,000 in the fifth year, your credit will be $262—an extra $112 (75%) of Federal tax savings (assuming the enhanced 29% rate).
One caveat is you must claim tax credits for gifts you carried forward from a previous year before claiming tax credits for gifts you give in the current year. If you are claiming a
carry-forward, keep a record of the portion of the eligible amount you are claiming in the current year.
The rules for charitable donations are quite flexible, presumably to support public policy of encouraging charitable giving. Given the considerable flexibility and the potential for
those amounts to be significant, CRA often request supporting documentation.
Therefore, it is important to keep all your documents . . . in case the CRA asks to see them.