Canadians are generally generous and will readily contribute to charitable causes such as at local food banks or volunteering at a shelter. What a good number of people do not know is that besides feeling good for having given to charity, you could even get tax breaks. The Canadian Revenue Authority offers generous tax credit systems for Canadians donating to charity.
Does Charitable Donation Reduce Taxes?
If you have been planning to donate to your favorite charity organization, why not start now. The Charitable Donations Tax Credit gives up to 33 percent tax credit for the amount you donated at the federal level. As a donor to charity, you are also entitled to an additional amount in tax credit which may reach maximum of 24 percent of your donation depending on your province of residence in Canada.
Eligibility Criteria
We'll have a look at some of the rules outlined by the CRA with regard to eligibility for the Charitable Donation Tax Credits (CDTC).
Who qualifies? The CDTC program is readily accessible to Canadians making a donation to a qualifying donee. A charitable donation is described as a gift for which no consideration is given in return. Your donation can be anything from money, property, stocks, cultural and ecological gifts, and other items that hold value.
However, if you happen to receive anything in exchange for your donation such as a ticket to a show or movie, the value of the item you received must be subtracted from the amount you donated. As a result, you will only claim CDTC for the difference. WEALTHinsurance.com has provided an updated list of qualified organizations that they worked with under the CDTC program.
What or who is a qualifying donee? As per the regulations, a qualifying donee refers to a registered charity or one of the following public organizations; an amateur athletic association, a municipality, a province, or territory that can issue tax receipts. Donations made to animal charities such as the Society for the Prevention of Cruelty to Animals (SPCA) also qualify for CDTC and you claim your donation when making tax returns. You must get a tax receipt from the donee. Ensure that the donee issuing a receipt is legally entitled to issue it.
The CRA has a searchable online database that helps in confirming that a charity is registered and eligible to issue official donation receipts. Additionally, you are able to ascertain the status of a registered charity by calling the CRA at 1-800-267-2384. Avoid falling victim to donation schemes that will separate you from your hard earned money.
How to Claim my Donations
You need to report your claim on your provincial and federal tax returns to claim your credit. As a rule, your credit will be 15 percent of the first $200 of donations and 29 percent of your additional donations at the federal level. Under special rules, the tax credit can reach up to 33 percent if you fall in the highest tax bracket.
All the different provinces also have their own tax regulations and similar tax credits on donations that fluctuate between 4 percent and 24 percent.
How much does a charitable donation reduce taxes?
The CRA has provided an online tool to help taxpayers calculate their tax credit. The online CRA calculator also has the provincial component to help with calculations. You will easily calculate how much you credit you can claim for your donations.
Donations and gifts are non-refundable tax credits. Effectively, that means you must claim your other credits first and thereafter claim CDTC. When the amount is sufficient to bring your tax payable down to zero, you are not in a position to use your charitable donations to create or increase your tax refund. If you happen to have tax payable, you will be in a position to use all or a part of the donation amount. The unused claims can be carried forward up to a maximum of 5 years. Keep in mind that donations can only be claimed once.
Donation Credits are Transferable
Charitable donations are flexible in the manner that they’re claimed. Indeed, you can transfer all or part of your donation credits to your spouse or common-law partner if claiming your donations will not affect your refund due or balance owing due to low income or claiming other deductions.
What is the maximum donation deduction for taxes?
There is a maximum limit to what you can claim on your donations. Applicable laws prescribe that your total donations can be up to 75% of your net income unless you qualify to be termed as a member of perpetual poverty. Members of perpetual poverty are allowed to donate their entire earned income and subsequently claim it as a deduction. Members of perpetual poverty will claim the deduction on line 25600 of their Income Tax and Benefit Return.
In conclusion, charitable donations are not only about supporting noble causes but also offer tax savings. You may not save a dollar for every dollar you donate to charity. You stand to reduce your tax bill by roughly a quarter or thereabouts for every dollar donated. It is still a good little bonus. It is worthwhile to accumulate your donations and claim them all in the same year. Remember that CDTC is higher for donations higher than $200. One way of accumulating donations is combining them with those of your spouse on a single tax return. Alternatively, you can claim donations from a number of years together in a single tax year. The maximum allowable time to carry forward donations is five years.
