Kindness Wrapped in a Tax Break

Donating to a charity can make you feel like you are contributing to making a difference in this World, but can also give you some tax advantages. In most cases, you can claim up to a limit of 75% of your income…so the sky is essentially the limit.

Did you forget to claim your donations last year? No problem. You have five years to claim a donation. This may be to your benefit to accumulate multiple years because the charitable credit is greater for donations of over $200. You can also transfer your donations to your spouse (or vice versa) to maximize the tax impact of your donation.

The federal credit itself can make up to 29% of your income while the provincial income can reach up to 21% of your donation.

For example, Derek makes a $500 donation to a registered charity in 2019 and lives in Alberta:

1.  The federal charitable tax credit (15% on the first $200 and 29% on the remainder) can be calculated as such: (15% x $200) + (29% x $300) = $117

2.  The provincial charitable tax credit (10% on the first $200 and 21% on the remainder) can be calculated as such: (10% x $200) + (21% x $300) = $83

3.  Derek’s total charitable tax credit is $200 Derek can use his $200 credit to reduce taxes owed that tax year. If he does not have taxable income in the current tax year, his best bet would be to hold onto those donation receipts for a year where his income is high enough to be taxable or his spouse can use the credit instead.

Do you have more questions regarding donations? Call our tax professionals. We will be happy to help you.