Registered charities in Canada perform valuable work in our communities, and Canadians support this work in many ways. The Canada Revenue Agency (CRA) regulates registered charities under the Income Tax Act, provides donors with relevant information and provides tax credits for assets donated to a charity.
Tax credits are calculated as a percentage of the amount you donate in a given year. For example, the first $200 you donate is eligible for a federal tax credit of 15% of the donation amount, and 29% on any amounts in excess of $200. You may also be eligible for a provincial tax credit for your donations (the amount of the provincial tax credit varies between provinces).
Generally, you can claim all or part of your donations up to a limit of 75% of your net income. However, for the year a person dies and the year before, the 75% limit is extended to 100% of the person's net income. Gifts of capital property are limited to 100% of your net income, except for cultural and ecological gifts, which are not limited to a percentage of net income.
You don’t have to claim all of the donations you made in the current year on your current-year return, as these tax credits can be carried forward and applied to any of the following 5 taxation years. You can also combine your receipts with your spouse and have only one person claim the entire amount (this is generally preferable to maximize the higher 29% tax credit rate).
If you have investments (stocks, bonds, mutual funds) that have an accrued capital gain, it is tax-preferential to gift the physical investment to the charity, as CRA will allow you to avoid paying tax on the accrued capital gain rather than sell the investment, crystallize the taxable capital gain, and gift the residual cash proceeds to the charity.
For updated donor information, including current donation tax credit rates, please visit the CRA website.
Choosing a Charitable Cause
Many people enjoy philanthropic endeavours throughout their lifetime, whether they volunteer their time or donate money to a particular cause or foundation. If you are in the process of choosing a charity and haven’t narrowed your choices, consider which causes are most important to you. Then do the necessary research so that your money is spent the way you would like.
Once you have narrowed your choices, you can compare charities in that field. Important factors to consider are: how much the charity spends on raising money, administrative costs, and what it ultimately gives away. If the information isn’t available on the charity’s website, you can always call directly and ask for details.
Giving to a Charity during your Lifetime
A donor-advised fund is a charitable giving vehicle administered by a third party and created with the purpose of managing donations on behalf of an individual, family or organization. These are funds whereby an individual can both make the donation to a foundation they create themselves (very inexpensively) and choose which charities will receive grants from the capital. A donor-advised fund offers donors a more hands-on approach to their charitable giving as they enjoy administrative convenience, cost savings and tax advantages by conducting their grant making through the fund.
Giving to a Charity at Death
To Provide Benefits to Charities
There are many creative ways to use life insurance to provide substantial legacies through your favourite charities. It is possible to get a charitable tax credit for the premiums paid for a life insurance policy, or to get a tax credit for the full amount of the death benefit of a policy to offset other taxes payable in your estate, such as from RRSPs or RRIFs etc.
A charitable trust enables you to continue your charitable donations after death.