How much do charitable donations reduce taxes in Canada

There are many reasons why Canadians support charities, including:

• Caring about a specific cause
• A desire to help less fortunate people
• To make a difference
• To feel good
• To play a part in helping social problems
• To become a better person

The Canadian federal, provincial and territorial governments recognize this generosity and provide a tax incentive for anyone donating to a registered charity. This is in the form of a CRA donation tax credit. This effectively reduces the amount of tax you owe.

You do need to be earning money and pay tax to benefit from a tax credit. If you don’t pay tax, you can hold off submitting your charitable donation until a year when you owe tax (donations can be carried forward up to five years or combined into a spouse’s or common-law partner’s tax return). So, how much do charitable donations reduce taxes in Canada? Let’s find out. 

How tax credits for charitable donations work

First of all, you need to choose a qualifying organization as prescribed by the Income Tax Act (which is generally registered with the Canada Revenue Agency). These include registered charities (not non-profit organizations) as well as some other registered organizations, such as Canadian amateur athletic associations, journalism organizations, low-cost housing corporations for the aged and municipalities.

The CRA has a search page where you can find out if your chosen charity or organization can issue tax receipts for donations.

The amount of your tax credit will depend on how much you donate and which province you live in. While federal tax credits are uniform across the country, provincial and territorial tax credits can vary considerably. In general, the first $200 of charitable donations reported on your tax return will bring about a 15% federal tax credit, and donations above that amount will normally bring 29% in federal tax credit. If you have income subject to the highest federal marginal tax bracket, the federal tax credit can be increased to 33% for donations claimed (up to the amount of your income that is subject to the highest tax bracket).

Provincially, up to $200 of donations can bring tax credits between 4% (Nunavut) and 20% (Quebec). Most provinces provide tax credits at this amount of donations at under 10%. Charitable donations over $200 will typically bring provincial tax credits between 11.16% (Ontario) and 24% (Quebec). Be aware that in Quebec the federal tax savings are generally reduced by the federal tax abatement. In certain provinces, the donation tax credit savings may be increased if you have higher income levels or are subject to a provincial income surtax.

There is a maximum charitable donation limit of 75% of your net income. The limit is increased to 100% of your net income for gifts of ecologically sensitive land and certified cultural property. To claim charitable tax donation tax credits, you would need to report the donation when you file your taxes – be sure to include all tax receipts for donations.

Some examples of how charitable donations reduce taxes

To give you a more accurate idea of how much you could save on tax by making charitable donations, below are some examples of a range of donation amounts and a variety of provinces, along with the corresponding tax credit:*

* Amounts as per the Canada Helps charitable tax credit calculator. These are estimates only and don’t take into account all tax situations or the Quebec federal tax abatement. 

Ways to reduce your taxes even more with charitable donations

Accumulate your donations: given the tax credit is significantly higher for donations above $200, it can be worthwhile accumulating your donations in order to increase their overall value. One way to do this is to claim several years’ worth of donations in just one year (you can carry charitable donations forward for up to five years). Another way is to combine them with your spouse’s or common law partner’s donations in a single tax return.

Donate investments: you can donate publicly traded securities, such as shares, mutual funds and exchange-traded funds to qualified charities. If your investments have risen in value, you would normally be subject to capital gains tax on them when you sell them. However, if you donate the assets to a charity, neither you nor the charity pay capital gains tax. Furthermore, your tax receipt for donations is at the full market value of the assets at the time you donate them. 

Make charitable donations a part of your financial plan

To maximize the impact of your charitable donations and minimize taxes, it pays to have a charitable giving plan. This will involve deciding on the charities you want to donate to and ongoing donation targets.

You might also want to consider starting a donor-advised fund (such as the IG Wealth Management Charitable Giving Program, a partnership with the Strategic Charitable Giving Foundation). This works in a similar way to a private foundation but without the upfront costs and complexity involved. The funds are invested and can grow on a tax-exempt basis. You choose how the funds are distributed and to which charities. Donor-advised funds can give you more flexibility (especially for ongoing charitable donations) than simply donating to individual charities.

Your IG advisor can help you to set up a tax-efficient charitable giving plan and give you more information about the IG Wealth Management Charitable Giving Program. Talk to your advisor today; if you don’t have an IG advisor, you can find one here.

^{Written and published by IG Wealth Management as a general source of information only. Not intended as a solicitation to buy or sell specific investments, or to provide tax, legal or investment advice. Seek advice on your specific circumstances from an IG Wealth Management Consultant.}

^{The IG Wealth Management Charitable Giving Program is offered together with the Strategic Charitable Giving Foundation, which operates independently from IG Wealth Management. Donations are irrevocable and vest with the Foundation. This information is general in nature and not intended to be professional tax advice. Please read the Program Guide for complete details, including fees and expenses.}