Contributed By Hull & Hull LLP
Making charitable donations can provide considerable benefits to both the charitable cause and the taxpayer. The recipient of the donation must be a registered charity in order to receive the desired tax savings.
Federal tax credits of 15% are received for the first CAD200 of a donation, and 29% is typically received for the value of the donation above CAD200. If an individual earns taxable income in excess of CAD200,000, a 33% tax credit may apply in respect of the amount of the donation over CAD200 and up to the extent of the donor's taxable income exceeding CAD200,000. For these reasons, it may be more advantageous to carry forward donations to receive higher tax credits on the funds above the initial CAD200, particularly if the donor's taxable income is greater than CAD200,000.
Charitable tax credits can be transferred from one spouse to another in order to maximise the benefit received (by combining the donation amounts and increasing the portion of donations above the CAD200 threshold).
Other tax credits may further incentivise charitable giving, such as the First-Time Donor’s Super Credit.
Gifting Capital Property
Donations to charities need not necessarily consist only of cash: capital property is another class of asset that many charities will accept and which may be associated with further tax advantages than gifts of funds.
When gifting capital property that has increased in value since its acquisition, the taxpayer can receive a tax credit for the full market value of the property without having to pay tax on the related capital gain. For example, if stocks or mutual funds are donated to a registered charity, no tax is payable on the increase in value.
Similarly, the Canadian government encourages residents to donate artwork or historically significant documents or artefacts. Certified cultural property can be donated to designated public institutions in exchange for a charitable receipt. The tax credit with respect to cultural property can be claimed for up to 100% of a taxpayer's net income.