In this article you’ll get all the information you need to know how to take advantage of one of the BEST allowable deductions in the Canada tax code; Charitable Donations.
If done right, tax deductible charitable donations can cut thousands of dollars off your Canadian tax owing. I’ve personally seen tax bills be cut in half or go away completely by using allowable charitable donations as deductions. If claimed and you don’t know what you are doing, a potential audit can cost you in penalties and interest, and believe me, Donations get audited especially if they are significant.
Today I’ll show you how you can legally use charitable donations on your Canadian tax return as a deduction to reduce the tax balance owing and not have to worry about them being disallowed in the case of an audit.
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| Donation Deductions in Canada are a great way to reduce tax balances. |
Introduction
We provide personal and corporate accounting services in Southern Alberta. With over 30 years combined experience, we want to give you some of the information we can provide you with as a client. We provide you with this information for reading purposes only, and it does this is not financial nor tax advice.
The reason we say that this post is for reading purposes only is that, as we are probably all aware of, tax laws can change from year to year and what is allowable in practice at the time of this writing may not be allowable in practice in the future.
We simply can’t make any guarantees whatsoever about the information in this article being factual for the reason stated, so please feel free to contact us or your tax preparer of choice for more information about deductible charitable donations in Canada.
Deductible Charitable Donations in Canada Overview
For definition purposes, a donation is a gift, meaning it is voluntary and there is no advantage in donating (other than possibly for claiming the tax deduction).
When you give money (or in some cases property) to a registered charity in Canada, you can deduct that expense on your tax return.
The Charitable tax deduction in Canada is a non-refundable tax credit, so it can only reduce the taxes owed. After all taxes are reduced to Zero, don’t expect them to start paying you in the form of a refund.
There are a few exceptions that we’ll get into later, but for now just understand that donating an amount that reduces the tax owing beyond Zero is not going to be advantageous for you.
Are Charitable Donations an Itemized Deduction in Canada?
The major advantage to charitable donations in Canada as compared to the United States is that there are no such thing as choosing itemized deductions over standard deductions. In Canada, everyone takes a standard deduction which is called the Basic Personal Amount (BPA).
In 2024, the Basic Personal Amount will be $15,705 per person (up $705 from $15,000). So because there is no option of itemizing your Canadian tax deductions, this means you do NOT have to have itemized deductions equal to $15,705 for your tax deductible charitable donations to be allowable.
If you made a $500 charitable tax deduction, you WILL see it affect your tax balance regardless of what you have for other deductions. So, keep those charitable donation receipts and don’t throw them away!
Organization Eligibility
Who is an eligible donee in Canada? According to the CRA website, an eligible donee is a registered charity that has done all that it is required to do to register and maintain its charity status and hasn’t had their tax-receipting privileges suspended.
Anyone who is going to give out tax-deductible charity donation receipts will have to register for the donation to be tax deductible.
You must be careful to make sure the organization you are donating to has not had their charitable status revoked or annulled as a result of failure to file, audits, or voluntary revocation.
If you are wondering if the organization you are about to donate to is registered and up to date, you can use this very useful tool at the CRA website to search the organization.
A list of typical tax deductible charitable organizations would be Churches, Religious organizations, Schools, Nonprofits, and Universities.
Tax Receipt threshold for Donations
You’ll want to get a tax receipt for any donation you make. It is important to note that if the donation is under the amount of $20, the organization is not required to give you a tax receipt.
This is aggregate for the tax year, meaning if you donate $10 per month to your charitable organization of choice, the total for the tax year is going to be $120 and they are required to give you a tax receipt.
If there is a one-time donation of $10, you can ask for a tax receipt, but you might not get any.
How Tax Receipts Work in Canada
Tax receipts are issued on a calendar year basis. The charitable organization will add up all the donations you made to that organization and send you a tax receipt for the year.
The charitable organization does not report any tax deductible charitable donations to the CRA Canada Revenue Agency nor the government. The only one that receives the tax receipt for Charitable contributions is you.
Spouses can claim tax receipts made in their spouses’ name. In order to do this, the tax deductions must be transferred from your spouse’s return.
Outside if that exception, the official tax receipt must show the tax payer’s name. You cannot claim a tax receipt that has a parent or other relative’s name on it.
You will need to claim this amount on your Canadian tax return since there is no way the CRA knows what you’ve donated for the year.
Limits to Canadian Charitable Donations
There are no limits as far as charitable donations in Canada. Once you’ve reduced your Net Federal Tax from Schedule 1 on the T1 and Provincial or Territorial Tax, there is no more benefit to claiming charitable donations for that tax year.
Charitable Donations and CPP
Do Charitable Donations reduce your CPP contributions on Self Employment income? No, they do not affect your CPP Contributions on Self Employment Income in Canada.
This means that if you are self-employed in Canada, Charitable Donations will reduce your income taxes, but you may still have a balance owing on your return because of CPP contributions of Self-employment income.
Carrying Forward Charitable Donations
You have the option to use the charitable donation tax deduction in the tax year it was made. If it doesn’t make sense for you to claim it in that tax year, you have the option to claim that charitable contribution as a tax deduction up to five years down the road.
After five years, that tax deduction is unclaimable and disallowed, so in the sixth year, the tax receipt for charitable donations will expire.
If you claim an amount that reduces your tax liability to zero, any amount of charitable donations beyond the amount that reduce your tax liability to zero go into thin air. They are not automatically carried forward to the next year.
It would be better to not claim those tax receipts in that tax year and hold onto them for a future year up to five years.
Federal & Provincial Personal Charitable Tax Credit Rates
Alberta is the most generous when it comes to tax deductions for Charitable Donations in Canada. In 2023, the first $200 is credited at 15%, then 29% on amounts over $200 federally. Donation tax Credit rates differ provincially, with Alberta being the highest at 60% of the first $200 of charitable donations being credited, and 21% on amounts ever $200.
If $1,000 of charitable tax deductions are claimed, $550 would be the tax credit in Alberta.
Federal & Provincial Corporate Charitable Tax Credit Rates
If you are donating to a registered charity in Canada as a corporation, the donation is 100% deductible on your corporate tax return, and claimed as an expense on the T2.
Church Donations by Cash
A big question that might be on your mind is “Are donations to Churches tax deductible in Canada?”. The short answer is YES, as long as they are registered and up to date, Church donations are tax deductible in Canada. Any donation to a religious organization in Canada falls under the same guidelines as other charities.
In case you are wondering, feel free to look up the specific Church you would like to donate to in the CRA List of Charities basic search here.
Charitable donations to Churches can sometimes be called Tithes, or Tithing. When you donate to a Church or religious organization, you must realize that the donation must be traceable by the Church or religious organization.
Anonymously putting cash in a donation box or plate cannot be deducted as a charitable donation because you will not receive a charitable donation tax receipt from the organization at the end of the year.
When donating to a Church or religious organization in Canada, be sure to ask what the procedure is for getting a tax receipt from the organization. You will likely need to put the cash donation to the Church or religious organization in an envelop with your name and address marked on it.
Church Donations by E-Transfer
Many Canadian religious organizations including Churches are accepting E-Transfers for tax deductible charity donations. Again, talk to the organization before donating to understand what you need to do in order to get the tax receipt at the end of the year.
It would be a wise idea to note your name and address on the E-Transfer notes to ensure the Church or religious organization knows who the money came from and to add the amount to the tax receipt you’ll get for the tax year.
GoFundMe or Similar Fundraising Donations
Are GoFundMe donations tax deductible in Canada? Probably not. It’s not a clear answer, because it depends on who you donated to on the site. In general, GoFundMe is a personal fundraiser and is not tax deductible.
Say if your friend sends you a link to GoFundMe for someone’s operation, this would be a personal fundraiser and would not be an allowable tax deduction to charity in Canada.
If you are donating to a registered charity through GoFundMe, it would be a better idea to donate directly to that charity than to pay through GoFundMe from a tax perspective.
First, GoFundMe is going to take a percentage of your donation as they need to make some profit to stay in business.
Secondly, it will probably be easier for the registered charity to give you a tax receipt if you donate to them directly.
Feel free to ask the charity which they prefer, but I’d bet they will tell you a direct charitable donation makes more sense.
Cash Donations to Charitable Organizations Outside of Canada
In general, to claim donations on your Canadian tax return, the charity has to be registered in Canada. If the organization is large enough, they will likely have a Canadian affiliate that is registered in Canada.
In some cases, under the U.S. Canadian tax treaty, U.S. charitable donations are allowable, but the Canadian Taxpayer must be reporting U.S. income on their Canadian tax return, and the charitable tax credit will only be applied towards U.S. income.
Donations that are not Money
Canada is a bit different than the United States when it comes to donations that are not in cash. We'll go through a few of the most common non-cash charitable contributions and if they are allowable in Canada.
Volunteer Time Tax Deductible
If you volunteer your time to a registered charitable organization, it is not an allowable tax deduction on the Canadian tax return.
Donations to Thrift Stores Tax Deductible in Canada
In the United States, if you donate clothing, furniture, or other goods to a thrift store or second hand store, you will probably be asked if you’d like a tax receipt for the donation, since you can deduct the donation on your return if you are itemizing deductions.
In Canada, donations of second hand goods are not allowable and therefore you will not be asked if you’d like a tax receipt when donating used items to a charitable nonprofit organization.
Conclusion
Claiming Charitable Donation Gifts in Canada is one way of reducing your tax balance if you have taxable income in Canada. A tax receipt is required to deduct the donation.
If you have any questions about charitable donations in Canada that were not answered in this post, please contact us today. We can help you with any tax related work that you need done, and get you caught up with CRA returns.
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