Moore Stephens
Taxation

Tax Credit for Charitable Donations

Charitable donations offer significant tax advantages in Canada. In fact, when made by an individual, charitable donations may qualify for a non-refundable tax credit. In the case of a corporation, the tax advantage lies in a deduction in calculating the corporation’s taxable income. For individuals, the federal tax credit is 15% on the first $200 donated, and 29% on amounts over that. In Quebec, the rate is 20% on the first $200 donated, rising to 25.75% thereafter. The limit on eligible donations is set at 75% of the donor’s net income, with the possibility of carrying forward the excess over the next five years.

This text provides a brief review of the important concepts surrounding charitable giving. Read on to find out more about them.

Qualified Donees

To qualify for the credit or deduction, it is important that the donation be made to a registered charity or other qualified donee. This criterion of recognition of the organization is essential in order to benefit from the tax advantage.

The Canada Revenue Agency (CRA) maintains a list of charities and other qualified donees, which you can consult at any time.

Special Features of Certain Categories

For information and accuracy, thehe registered journalistic organizations are a new category of qualified donees as of 2020. This measure was designed to support independent Canadian journalism in the face of digital challenges.

Canadian amateur sport associations represent another notable category. These organizations contribute to the development of athletes and the promotion of sport in communities.

A ecologically sensitive land donated to these organizations can also generate substantial tax benefits for the donor.

Value of charitable donation

There are various ways for a donor to make a charitable gift. The best known is the cash donation. In such a situation, the valuation of the value of the donation is very simple, and corresponds to the cash amount less the benefits obtained. For example, if a person makes a donation to a fundraising dinner, the value of the donation will be reduced by the value of the meal.

The gift can also be made “in kind”, i.e. a donation made in the form of a transfer of property. In this situation, the eligible amount of the gift is generally equal to the fair market value of the property transferred at that time.

Special Features for Specific Types of Goods

For specific types of goodsthe valuation requires special attention, or an FMV valuation. The listed securities are appraised according to several criteria. A gift of art, such as a rare painting or unique sculpture, requires the expertise of a chartered appraiser.

In the case of a life insurance policy, we refer to a gift by designation to a donee recognized as the policy’s beneficiary. The eligible amount is the cash surrender value, plus any unused premiums. Gifts of real estate require a recent professional appraisal.

The evaluation of ecologically sensitive land must take into account its location and unique environmental characteristics. A biologist or environmental expert could be called in to establish its precise value.

Tax Benefits in Brief: Tax Credit and Tax Reduction

The tax benefits of donations vary according to your situation. An individual receives a non-refundable credit based on the eligible amount of the donation, while a corporation receives a direct deduction from taxable income.

The calculation is made differently depending on the part of the donation. To maximize your tax relief, remember to group your donations together for the same tax year.

Below are a few special features specific to the federal and provincial (Quebec) levels.

Federal (Canada)

For an individual, the tax credit is equal to the total of the following amounts:

  • 15% on the first $200
  • 33% of the portion of your income that exceeds $246,752 (in 2024), up to a maximum of $200.
  • 29% on the remaining portion of donations.
  • 20% on the first $200
  • 25.75% of the portion of your income in excess of $126,000 (in 2024), up to a maximum of the first $200 of donations
  • 24% on the remaining portion of donations.

In Quebec

For a corporation, since the eligible amount of the donation is deducted from the corporation’s taxable income, the tax savings are calculated by multiplying the value of the donation by the corporation’s tax rate. In other words, at the corporate level, a donation is akin, with a few nuances, to a regular business expense.

It’s important to note that in both cases, the federal government limits the monetary donations that can be included in the credit calculation to 75% of the taxpayer’s net income (or taxable income for a corporation). Any excess amount can be carried forward for up to 5 years. In Quebec, this limitation no longer exists since 2016.

Things to Know for Individuals and Companies

For those planning or wishing to make cash or in-kind donations between now and the end of the year, in order to reduce their tax liability, here are a few tips to keep in mind:

  • A taxpayer may elect to defer the timing of tax utilization of the donation tax credit. It may be advantageous for a taxpayer to accumulate donations and not use the tax credits immediately, in order to carry the credit forward to a future tax year in which he or she will have a higher marginal tax rate (within the limits of the five-year donation carryforward).
  • To optimize the credits available, the amount of donations made by either spouse can be combined on one of the two tax returns.
  • A registered charity working in Quebec in the arts or culture;
  • A registered cultural or communications organization;
  • Also for individuals residing in Quebec, it is possible to obtain a “cultural patronage” tax credit of 30% on a donation of at least $250,000 (or a registered pledge of at least $250,000 over a maximum period of 10 years, i.e. a minimum of $25,000 per year) to a charitable organization working in Quebec in the field of arts or culture, or to a cultural organization or museum institution located in Quebec. This credit cannot be claimed if the individual already benefits from a charitable donations credit or the additional tax credit for major cultural gifts.
  • A taxpayer or corporation wishing to sell financial securities (publicly traded shares, mutual fund units and segregated fund units are securities eligible for this measure) with a significant capital gain during the year in order to make a donation should consider donating the securities directly to the charity rather than making a cash donation of an equivalent net amount. Certain tax provisions make it possible to avoid taxation of an unrealized capital gain when the gift of property is made to a qualified donee. This has the advantage of significantly reducing the tax payable, and therefore enabling a larger donation.
  • If you’re an individual resident of Quebec planning to make a gift of culture, you may be eligible for an additional tax credit of up to $6,250. The Quebec government grants an additional tax credit of 25% on a “first donation” (A “first donation” refers to a single donation that can be claimed under the additional credit for major cultural gifts made by an individual after July 3, 2013.) of at least $5,000 (and a maximum of $25,000) made to one of the following organizations:
  • Also for individuals residing in Quebec, it is possible to obtain a “cultural patronage” tax credit of 30% on a donation of at least $250,000 (or a registered pledge of at least $250,000 over a maximum period of 10 years, i.e. a minimum of $25,000 per year) to a charitable organization working in Quebec in the field of arts or culture, or to a cultural organization or museum institution located in Quebec. This credit cannot be claimed if the individual already benefits from a charitable donations credit or the additional tax credit for major cultural gifts.

Although a donation to a charitable organization can reduce your tax bill, it is above all a social and personal gesture. If you are planning or interested in making a charitable donation before the end of the year, our team can advise you on the best way to do so, depending on your situation.

More questions? We have the answer.

Is a Donation Tax-Deductible, and How Do I Know If it Is?

The deductibility of a donation depends first and foremost on the status of the donee. To check an organization’s eligibility, consult the official list of registered charities on the CRA website, or call 1-800-267-2384.

An official receipt is the essential proof you need to claim your tax credit. Organizations can set a minimum amount for a receipt – for example, $20 – or choose not to issue one at all.

The golden rule: keep all your original receipts for at least six years after you file your tax return. The CRA may ask for them in the event of a tax audit. Don’t forget that gifts in kind require a professional appraisal of their fair market value to be deductible.

Is a Donation Taxable in Quebec?

In Quebec, donations received are generally not taxable to the recipient. This rule applies to both individuals and registered charities.

An exception exists when the donation is related to a service or professional activity. For example, an artist who receives compensation for a work created specifically for a donor will have to declare this amount as income.

The non-monetary benefits associated with donations deserve special attention. If you receive a good or service in exchange for your donation, the value of this benefit could be considered income, depending on the circumstances. A typical example: a ticket to a show received in return for a financial contribution.

What are the conditions for a tax credit?

To qualify for a tax credit, your donation must meet specific precise criteria. The amount donated must be earmarked for an organization recognized by the Canada Revenue Agency, with no direct or indirect consideration.

The transaction requires proof of payment dated within the current tax year. Electronic transfers, cheques and credit card payments are valid payment modes.

The credit applies only to amounts over $20, up to a maximum of 75% of your annual net income. Here’s a concrete example: on a net income of $60,000, your eligible donations cannot exceed $45,000.

Visit in-kind contributions such as works of art, land or financial securities require a professional appraisal before being eligible for the tax credit.

How Can I Obtain a Receipt for a Donation of Money or Other Items?

The procedure for obtaining your tax receipt varies according to the type of donation. For online donations, the organization generally sends the document by e-mail within 1 to 3 weeks of the transaction.

If you make a donation by cheque or in person, you will usually receive a receipt on the spot, or by mail or e-mail. Some modern organizations can also offer a secure digital platform for downloading your receipts at any time.

Note that the receipt-issuing period intensifies at the beginning of the year, particularly between January and February. A practical tip: keep a digital copy of your receipts by photographing or scanning them as soon as you receive them, and file them in preparation for your next tax return.

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