Charitable Donation Tax Credits: How to Give More and Pay Less Tax

Charitable Donation Tax Credits: How to Give More and Pay Less Tax

Donating to charity is good for the world, and Canada’s tax system makes it good for your wallet too. The charitable donation tax credit is generous, but most Canadians don’t use it optimally.

How the Credit Works

Charitable donations to registered charities generate a two-tier federal tax credit:

• First $200 of donations: 15% federal credit
• Donations above $200: 29% federal credit (or 33% if your income is in the top bracket)

Provincial credits add on top, varying by province. Combined, the credit can return 40% to 50%+ of your donation in tax savings, depending on your province and income.

You Can Claim Up to 75% of Net Income

In any given year, you can claim donations up to 75% of your net income. In the year of death (and the year before), the limit increases to 100%.

Pool Donations on One Return

Since the first $200 gets a lower credit rate, it’s more efficient to pool household donations on one spouse’s return. This maximizes the amount above the $200 threshold at the higher credit rate.

Carry Forward Up to 5 Years

You don’t have to claim donations in the year you made them. You can carry them forward for up to 5 years. This is useful if you made a large donation but don’t have enough tax owing to use the credit this year, or if you expect to be in a higher bracket in a future year.

Donate Securities Instead of Cash

This is the biggest optimization most people miss. If you donate publicly traded securities (stocks, ETFs, mutual funds) directly to a registered charity:

• You receive a donation receipt for the fair market value
• The capital gain on the donated securities is completely eliminated (0% inclusion rate)

Example: You bought shares for $5,000. They’re now worth $15,000. If you sell and donate the cash, you pay tax on the $10,000 capital gain and get a donation credit for $15,000. If you donate the shares directly, you pay zero capital gains tax and still get the $15,000 donation credit.

First-Time Donor’s Super Credit

Note: the First-Time Donor’s Super Credit expired after 2017. It no longer applies. Some online information still references it incorrectly.

Qualifying Organizations

Only donations to registered Canadian charities and certain other qualified donees (registered Canadian amateur athletic associations, federal/provincial governments, the United Nations, etc.) generate the credit. Check CRA’s charity listings to confirm an organization’s registration before assuming your donation qualifies.

Common Mistakes

• Not pooling donations. Two spouses each claiming $300 wastes the first $200 threshold twice.
• Selling securities and donating cash. Donating the securities directly is almost always better.
• Losing receipts. No receipt, no credit. Keep them for 6 years.
• Claiming donations to non-registered organizations. GoFundMe, personal requests, and many international charities don’t qualify.

Want to maximize your charitable giving tax benefits? Book a free consultation with FinGems.