Understanding Charitable Donation Tax Credits in Alberta
James and Ashley have 3 kids and 12 nieces and nephews. When James and Ashley go to a family dinner, they know to bring their chequebook, because inevitably, one of the youngsters will be selling items or raffle tickets to support their extra-curriculars. Last Christmas, twelve-year-old Jacob was selling raffle lottery tickets for his hockey team at $50/piece, with a 1 in 3,000 odds of winning. James and Ashley didn’t like those odds, so instead they made a $50 cash donation to Jacob’s Minor Hockey Association, which is a registered non-profit. The Hockey Association got to keep the full $50, and James and Ashley got a charitable tax credit of $37.50, effectively reducing their out-of-pocket cost to only $12.50.
What are the tax credits for donating to charity?
James and Ashley live in Alberta, so they’re benefiting from the highest donation tax credit rate in the country. They each receive a 15% federal credit plus a 60% provincial credit, for a total credit of 75% on their first $200 of donations. For amounts over $200, they each can claim a 29% federal credit plus a 21% federal credit, for a total credit of 50%.
Determine your estimated charitable tax credit here.
The chart below details donation tax credits across Canada. (source: taxtips.ca)
What type of charities can issue donation tax receipts?
Canada has approximately 86,000 registered charities and an estimated 80-100,000 unregistered non-profits. Any organization that is registered with the CRA as a charity can issue a donation tax receipt. Donations are a gift. They are irrevocable and can only be issued for a value where nothing was received in return.
Examples of qualified donees includes:
Canadian Amateur Athletic Associations (CAAA)
National Arts Service Organizations (NASO)
Registered Journalism organizations
Low-cost housing corporations for the aged
Municipalities
Universities
Research foundations
Find a searchable list of charities and other qualified donees in the CRA database here.
While most of these charities have their beneficiaries’ best interests at heart, how efficiently or effectively they accomplish their mission will vary. For third party guidance in finding charities that deliver results, check out Charity Intelligence’s report on Canada’s 2023 Top 100 Rated Charities .
Can charitable donation tax credit be shared between spouses or carried forward?
Yes, charitable donation tax credits can be shared between spouses/common-law partners and carried forward up to 5 years. Let’s say after donating $50 to their nephew’s hockey, James and Ashley donated $150 to their daughter’s daycare society, and $300 to a local charity supporting youth homelessness, bringing their total charitable donations for the year to $500.
They both had taxes owing at the end of the year, so to get their maximum credits, they each claim $200, with James claiming the remaining $100. If neither of them had a tax liability at the end of the year, they could carry forward the credit for up to five years. If only Ashley had a tax liability at the end of the year, she could claim $200 at the higher credit rate, and $100 at the regular rate, and they could carry forward the other $200 for up to 5 years.
If they lived in any province other than Alberta, it could make sense for them to accumulate smaller donations to carry forward until they have over $200, because the other provinces offer greater tax incentives on donations over $200 than they do on donations under $200.
(Note that Alberta increased its provincial charitable tax credit for donations under $200 from 10% to 60% effective January 1, 2023, so only donations made after that date are eligible for the new tax credit rate.)
How do I know if I have an unclaimed charitable donation tax credit?
You can find out if you have claimed a donation in a previous year by using CRA’s My Account service. Login and click on the tax returns tab to see you tax returns from previous years. From there, look at line 34900 on your Income Tax and Benefit return from 2019 onward, or for returns prior to 2019, look at line 349 on your T1 General.
Can I claim a tax credit for non-cash donations?
Yes, you can claim charitable donation tax credits for non-cash donations. A donation can be anything of value, such as stocks, property, cultural gifts, etc.
For example, if Ashley and James have a non-working 2001 Buick sitting in their farmyard, and they don’t want to go the hassle of repairing it, towing it, or selling it, they could donate it to a charity like Kars 4 Kids and receive a tax receipt for the fair market value of the vehicle.
Donating securities such as stocks or mutual funds directly to a charity can be an effective tax reduction strategy if the investments have accrued large capital gains. Normally, if your investments have risen in value, you would be subject to capital gains tax when you sell them. However, if you donate the assets to a charity, neither you nor the charity pay capital gains tax. As a bonus, your tax receipt for donations is at the full market value of the assets at the time you donate them.
Can I claim a charitable donation tax credit for items I purchased at a charity auction?
If you paid over fair market value for the item, then you can claim a tax credit for the difference between what you paid and the value of the item. If you paid at or below fair market value for the item, you cannot claim a tax credit.
Can I claim a charitable donation tax credit for donating through GoFundMe or other crowdfunding platforms?
Only non-profits registered with the CRA can issue donation tax receipts. GoFundMe is a for-profit crowdfunding platform where almost anyone can set up a campaign and solicit donations for it.
GoFundMe does not issue receipts directly, but in cases where a campaign is on behalf of a registered charity, GoFundMe partners with PayPal Giving Fund Canada to automatically deliver the funds to the charity and issue tax receipts to donors.
In cases where a crowdfunding campaign is going directly to an individual, family, or informal cause, potential donors should be extra vigilant to ensure they understand and trust the organizer, beneficiaries, and cause behind the campaign.
Can I claim a tax credit for donations made through my business?
Yes, Canadian corporations can claim a tax deduction for the fair market value of the donation amount against their income. The donation reduces their taxable income, therefore reducing their tax liability.
Let’s return to Ashley and James. From their farm, they operate a mobile butchery business, Wheel Deal Meats, which posted an annual income of $100,000. Wheel Deal Meats made a $1,000 donation to the local 4H club, effectively bringing its taxable income down to $99,000.
Just like personal taxpayers, corporations can carry forward donations for up to 5 years. Generally, a corporation can claim a charitable deduction of up to 75% of their net income for the year.
Is it better to donate personally or through my business?
Whether it’s more tax-effective to make a charitable donation personally or through your business depends on a multitude of factors, such as the amount and type of the donation, the size, structure, and cash flow of your business, and more. Businesses could also consider claiming the donation as a business expense as opposed to claiming the donation tax deduction.
Check out this article for a more detailed explanation and talk to your Metrix advisor for personalized, professional advice on the best way to structure the donation.
How can I avoid charity fraud?
In 2021, Canadians donated a total of $11.8 billion to non-profits. And where funds flow, fraudsters will follow.
A charity scam could look like this: scammer contacts you to ask for a donation to a charity, association or religious or political cause. Expert scammers may know which causes personally resonate with you. The purported “cause” may also take advantage of recent natural disasters or events in the news. The scammer uses high pressure tactics and emotional stories to get you to donate immediately. They may contact you through a strange call display number or a free email address and ask for donations in cash, money order, cryptocurrency, or gift cards.
Legitimate charities will readily offer information about their operations, how your donation will be used, and proof that your contribution is tax deductible. Ask the organization for their registered charitable tax number and then confirm the number by searching for the charity in this CRA database.
Check out the Canadian Anti-Fraud Centre for current charity and donation scams.
What is a donation tax shelter scheme?
Another form of charity fraud is the donation tax shelter scheme. These are arrangements where you get a donation receipt for more than the amount you donated. The CRA audits every donation tax shelter scheme and, so far, not one complies with the Income Tax Act. The CRA has disallowed billions of dollars in donation claims and has reassessed hundreds of thousands of taxpayers who took part in the schemes.
Charitable donations are one of the biggest triggers for a post-assessment, which is a request by the CRA for documents to support the deductions and credits claimed on your tax return. The CRA can reassess your income tax return up to three years after the date of your initial notice of assessment, and in some cases, can go beyond the three-year limit. (Source)
Recently an Ontario former tax professional was sentenced to three years in jail for claiming more than $34 million in false charitable donations for his clients, while taking a cut off the top.
Remember, if it seems too good to be true, it probably is.
Key takeaways:
Only registered charities can issue tax receipts.
If you live in Alberta, you can claim a credit of 75% of your first $200 donated, and 50% on amounts over $200.
The tax credit can be carried forward up to 5 years and can be partially or fully transferred to your spouse or common-law partner.
Donations can be anything of value: cash, securities, property, etc.
Businesses can receive a tax deduction for charitable deductions.
Beware of charity fraud and avoid donation tax shelter schemes.
For reliable, expert advice on how to structure and claim charitable donations to maximize tax efficiencies, contact the Metrix team.