So many charitable causes deserve financial support, but obviously you can’t donate to them all. Most people choose the ones they connect with the most. Whichever causes resonate with you, take note that the donation deadline is December 31 in order to be issued a tax receipt that qualifies for this year’s income tax return.
There are several ways to help make the most of your charitable giving as you support your chosen causes. For example, in any given year you may claim 15% of the first $200 donated as a federal tax credit, and then 29% for amounts above $200.1 You also receive provincial tax credits for donations – the amount varies by province. Therefore, if you want more of your donation dollars to qualify for the higher 29% tax credit, consider combining this year’s amount with future years (note, donations can be carried forward up to five years), so you can benefit from a larger tax break.
In addition, you and your spouse/common-law partner may consider pooling your donation receipts, in order to have the tax credit claimed by the spouse/common-law partner in the higher tax bracket, or to take advantage of larger tax credits for donation amounts above $200.
Also keep in mind that donations are non-refundable tax credits, so you should claim your other tax credits first. If those credits result in no tax being owed, then donations cannot be used to create or increase a tax refund. Since you may carry forward unused donation amounts for up to five years, you can defer claiming your donations until you need them within that time period to reduce your taxes.
Are you thinking about selling a security – such as a stock or mutual fund – and then donating the proceeds to charity? Here’s a more tax-efficient way to do it. When you sell a security at a profit, you typically pay capital gains tax on that profit, which means you will have less money remaining to donate.
However, if you gift the security directly to a charity before selling it, you will receive a tax receipt for the security’s entire fair market value at the time of donation, and no capital gains tax will apply. This means more money goes to the charity and your tax receipt will be larger than if you had sold the security first and then made a donation. Win-win! If desired, you can even split your gift of securities across several charities.
More charitable giving tips to consider
- The organization you support financially must be registered as a charity under the Income Tax Act in order for your donation to qualify for a tax credit. A registered charity has a Registered Charitable Organization Number, and the letters “RR” contained in that number signifies the organization is, in fact, a registered charity in Canada
- Many companies match employee donations (up to a certain limit), so check to see if your employer offers such an incentive. With minimal extra effort, you may be able to boost financial support for your selected charity
Remember that every charitable organization can use financial support, but they also welcome your time and effort. Therefore, if you’re not in a position this year to donate money, volunteering your time for fundraising events, administrative work and other related actions will be just as meaningful.
Contact our office if you have questions about how to make the most of your charitable giving, both from your own tax perspective and for the organizations you support.
1 Source: Canada Revenue Agency.