Tax Insights: Charitable donations – How much tax can you save? It may be less than you think

Issue 2016-15

Canada’s income tax system encourages gifts by individuals to Canadian charities (and other qualified donees). Depending on your province or territory of residence, you can reduce your tax liability by up to 54% of the total amount you donate to registered charities in a year exceeding $200 (see the Appendix in our Tax Insights).

The tax savings arise because the tax system allows you to claim non-refundable tax credits for the donations you make. These credits reduce your tax bill or, viewed in another way, decrease the effective cost of your charitable giving.

However, in some jurisdictions, the charitable donation tax credit has not risen to match provincial and territorial tax increases and therefore is not as high as would be expected.

With appropriate planning, the cost of your charitable giving can be further reduced if you donate certain non-monetary assets.

The general rule is that you will be granted charitable donation tax credits, for your total annual donations exceeding $200, at the top marginal income tax rate for:

  • federal tax purposes, and  
  • provincial or territorial tax purposes, based on the province or territory in which you reside

This is the case even if your marginal income tax rate is lower than the top rate.

For example, in British Columbia, where the top provincial income tax rate is 14.7%, annual aggregate donations over $200 will attract a provincial charitable donation tax credit at a rate of 14.7%.

Therefore, if you are resident in British Columbia and donated $10,200 in 2015, you are entitled to a provincial charitable donation tax credit of $1,480.

Your provincial credit is calculated as:

  • $10,000 x 14.7%, plus
  • $200 x 5.06%; in all jurisdictions (except Quebec), the tax credit on the first $200 of donations is based on the lowest marginal tax rate in the jurisdiction

In addition to the provincial or territorial credit, you will be entitled to a federal charitable donation tax credit that is calculated in a similar manner

Read this Tax Insights for more information.
 

Contact us

Brenda Lee-Kennedy

Partner

Tel: +1 416 218 1452

Bruce Harris

Partner

Tel: +1 416 218 1403

Angela Ross

Partner

Tel: +1 416 218 1541

Follow us