Donations and Tax Credits
By Nizam Shajani, CPA, CA, MBA
“There are those… who enter the world in such poverty that they are deprived of both the means and the motivation to improve their lot. Unless these unfortunates can be touched with the spark which ignites the spirit of individual enterprise and determination, they will only sink back into renewed apathy, degradation and despair. It is for us, who are more fortunate, to provide that spark” Aga Khan IV
Donations and charity are a personal value. This value is encouraged through valuable tax credits which may provide some enticement to dig a little deeper.
Eligible Amount of Donation
The amount that is eligible for a tax credit is the amount of the gift that exceeds the amount of any advantage received. For example, if you donated $100 and received an invitation to a gala that could be valued at $65 in return, the amount that is eligible for the donation tax credit is $35. This is the amount for which a registered charity can issue a receipt. If you receive nothing in return for your contribution, you should receive the full amount on your official donation receipt.
Who to Donate to?
While determining who to make a donation to is a personal choice, if you are looking for a tax credit CRA will want to endure the organization is properly registered. CRA provides a list of organizations that qualify. The list should be checked regularly as at times some charities once were qualified are disqualified for various reasons.
Qualified donees include:
- registered charities (search the List of charities)
- registered national arts services organizations (search the List of charities)
- registered Canadian amateur athletic associations
- registered housing corporations in Canada that provide only low-cost housing for the elderly
- registered Canadian Municipalities
- registered municipal or public bodies performing a function of government in Canada
- registered universities outside Canada which ordinarily includes students from Canada
- registered foreign charities that have received a gift from Her Majesty in right of Canada
- Her Majesty in right of Canada, a province, or a territory
- the United Nations and its agencies
Also note that although qualified donees may issue official donation receipts, they are not required to do so. You may want to verify if you will be receiving an official tax receipt before making the donation.
How Much to Donate?
You can claim eligible amounts of donations to a limit of 75% of your net income. If you are in the highest tax bracket, the donation will get a bit of a boost.
Donation Tax Credit
You will receive a tax credit of 15% on the first $200 in eligible donations. Amounts in excess of $200 receive a tax credit of 29%. However, if you are in the top federal tax bracket (making more than $205,842) you will receive a 33% tax credit on amounts over $200. Additional credits may be available at the provincial level.
You may claim in the current year any unclaimed donations made in the previous five years as well as any unclaimed donations made by your spouse or common law partner in the current year or previous five years. If you anticipate to move to the highest tax bracket next year, you may consider waiting until the following year before taking the credit for that extra 4% tax credit. Also note this is a non-refundable tax credit, so it can only be used against taxes owed. If you are not using the credit this year because you are not taxable, you should hold off on the claim or transfer the credit to your spouse.
If your plan is to sell share that have a capital gain and then using the proceeds to made a donation, stop. When you sell the shares, you will incur a taxable capital gain. You may be able to transfer those shares to a registered charity and receive a donation receipt for the fair market value of those shares – and therefore not incur the capital gain. This may also work for other capital property.
Be aware of scams. This rule has been used nefariously in schemes. Talk to our firm before you undertake this transaction.
This information is for discussion purposes only and should not be considered professional advice. There is no guarantee or warrant of information on this site and it should be noted that rules and laws change regularly. You should consult a professional before considering implementing or taking any action based on information on this site. Call our team for a consultation before taking any action. © 2020 Shajani LLP