Giving to charity is, quite simply, a good thing to do. It can improve the life of someone less fortunate than you.
It makes the world a better place.
And it’s just a bonus that you can use your charitable donation.
In Canada, only donations to registered charities qualify for an income-tax credit.
The Canada Revenue Agency (CRA) designates a ‘registered charity’ as a charitable organization, public foundation or private foundation that operates exclusively for charitable purposes. Those purposes could be:
- Relief of poverty
- Advancement of education
- Advancement of religion
- Community benefit as determined by courts
The organization must have been established in Canada and must reside in Canada. It must devote its resources to charitable activities.
The CRA, which keeps a list of registered charities on its website, provides each registered charity with a registration number and it is exempt from paying tax on its revenue.
What the taxpayer needs to know
You can get a credit for all your donations to registered charities, up to 75 per cent of your net income. In your year of death, the limit is 100 per cent of your net income.
Generally, your donations of cash, goods, land or listed securities (such as stocks) are eligible for a charitable tax credit. If, however, you gained some kind of tangible benefit from your donation, your donation is not necessarily eligible. This could include a dinner, admission to an event, a raffle ticket which comes with the opportunity to win a prize. You can still claim the donation but you must subtract the value of the benefit from the total of your donation.
- Combine your donations with those of your spouse or common-law partner
- Carry forward your donations up to five years (your donations should total at least $200 to take advantage of a higher credit rate
- Claim donations made at work (Box 46 of your T-4 slip)
You should also be aware that starting this taxation year, the federal government announced a temporary non-refundable super credit. It adds 25 per cent to the rates used in the calculation of your charitable donation tax credit for up to $1,000 of monetary donations.
It applies only to taxpayers who are claiming a charitable donation tax credit for the first time in their lives.
The first-time donor will be allowed a 40 per cent federal credit for donations of $200 or less, and a 54 per cent credit for the portion of donations more than $200 but less than $1,000.
My business makes charitable donations
If you’re a sole proprietor or in a business partnership, you can claim you tax credit the same way a taxpayer does. Enter your total donations on Line 340 of your T-1 income tax return.
When you make a donation as an incorporated business, neither the limits nor the credit rates change. The only difference is where you claim your tax credit: on Line 200 of your T-2 income tax return.
Remember, though, you cannot claim charitable donations to create or increase a loss in profits. If you end up with a loss, you can carry forward your donations and use them in any of the five following tax years.
Keep your receipts
We know … we sound like a broken record sometimes. You must keep your receipts to claim the charitable donation tax credit.
Donations have a couple of extra rules, though.
The receipt should have:
- The charity’s name and registration number
- The date of your donation
- A serial number
- The amount donated
- The donor’s name
- A signature on behalf of the organization
Here to help
A1 Accounting, a Calgary accounting and bookkeeping firm, is here to assist you with your taxes and planning. We specialize in personal taxes and small-business accounting and financial services. Contact one of our tax specialists and we can help you optimize the tax benefits and credits available to self-employed individuals and small businesses.
Fill out our contact form or give us a call at 403-226-8297.