Charitable tax credits: 7 things you need to know
New federal 'super credit' rewards 1st-time donors with additional 25% credit
For anyone who has thought about donating to a charity but hasn't yet found the time or will to do so, this might be the year to finally commit. As of March 20, 2013, first-time donors can claim an additional 25 per cent "super credit" on the first $1,000 they donate.
The new temporary credit supplements the usual charitable donation tax credit — which, federally, is 15 per cent for donations of less than $200 and 29 per cent for those over $200 — and can be claimed once in the tax years 2013 to 2017.
But regardless of whether you're a first-time donor or a veteran philanthropist, there are a number of things to keep in mind when it comes to charity and taxes.
How much can I deduct?
You are eligible to claim tax credits for donations up to 75 per cent of your net income for the year — and up to 100 per cent in the year of death. Charitable donations are eligible for both federal and provincial tax credits. The federal credit is the same across the board, but the provincial credit varies depending on where in the country you file your tax return.
In B.C., for example, those who make donations of less than $200, get a provincial credit equal to 5.06 per cent of the donation amount. In Quebec, it's 20 per cent. The rates go up once your donation exceeds $200 — to anywhere from 11.16 per cent in Ontario to 24 per cent in Quebec.
Credits are deducted from the amount of tax you owe and can be delayed and claimed in any of the five years following the one in which you donated.
When should I donate?
The deadline for making a tax-deductible charitable donation is the last day of the year for which you want to claim the credit. Unlike RRSPs, charitable contributions made in January and February can't be claimed on the previous year’s tax return.
Adam Aptowitzer, a lawyer with Drache Aptowitzer LLP who specializes in charity and tax law, would like to see the charitable donation deadline change to match that of RRSP contributions so that people could make decisions about retirement savings and charitable donations at the same time.
There is a significant advantage to donating marketable securities as opposed to cash, especially for more significant donations.- Jason Safar, tax expert at PwC
"If those donations are going to put you in a tax refund position, you're out of pocket on the cash for a shorter period of time," he said by phone from his office in Ottawa.
For now though, the deadline remains Dec. 31.
Which charity should I donate to?
Potential donors have a vast selection of organizations to choose from if they want a tax credit for their donation. They include not just the groups that people conventionally think of when they think of charities but also registered amateur athletic associations, national arts groups, government bodies (municipal, provincial or federal), United Nations agencies, and some foreign universities that accept Canadian students.
Donations to foreign charities that have received a gift from the Queen "in right of Canada" are also eligible for tax credits.
The easiest way to find out if a particular charity is registered with the federal government is to plug the organization's name into the Canada Revenue Agency's online charities database.
Jason Safar, a partner in PricewaterhouseCooper’s tax services practice in Toronto, says that in his experience, individuals often choose to donate to organizations with which they have had some prior active involvement, such as religious groups.
"You have people who volunteer at various charities, [and] they tend to donate to those," he said.
How do I assess the charity's work?
Both Aptowitzer and Safar say it's a good idea to research the charity you're considering supporting in order to learn more about how it operates. While there are crude measures of a charity's efficiency, such as the proportion of funds that are spent on overhead and administration costs versus actual programs, that number can be deceiving.
Unless it’s a really sizable gift, they shouldn’t expect to necessarily control where that money's going to go.- Adam Aptowitzer, lawyer with Drache Aptowitzer LLP
"[Potential donors] might want to call the organization and just get a feel for the people who will be spending their money," said Aptowitzer. "But once the decision is made to give, then unless it’s a really sizable gift, they shouldn’t expect to necessarily control where that money's going to go.
"Their money may well go to continuing the ongoing operations of the charity and there's nothing wrong with that."
Can I donate to a foreign charity?
With a few exceptions, only donations to registered Canadian charities will qualify for tax credits.
Safar says that in some cases, Canadians might be given a temporary window in which donations to a foreign disaster relief fund become eligible for tax credits — in the aftermath of a major natural disaster such as last year's Typhoon Haiyan in the Philippines, for example.
Some Canadians also give to U.S. charities, but those donations can only be claimed by those with U.S. income.
Should I donate cash or something else?
Charitable contributions don't have to be made in cash, and there are advantages to considering other types of gifts.
For donations of publicly traded stocks, ecologically sensitive land, certified Canadian cultural property and other types of so-called capital property, the CRA will not tax the capital gain or will tax only a portion of it.
Giving publicly traded stocks to charity can offer a significant advantage compared to cash, says Safar, especially if you're planning to donate a significant sum.
For example, say you have stocks worth $1,000 that you bought for a penny and decided to donate to charity. You would get credit for donating $1,000, but you wouldn't get taxed on the $999.99 capital gain on the stocks.
In that case, Safar said, one option is to take the money from the tax credit, which would amount to several hundred dollars, and put that toward buying the same publicly traded stock. That way, the capital gain would be calculated off a higher amount, not one penny.
Your charitable donation can also take the form of goods or services, but you will need to supply a receipt from the charity reflecting the donation's "fair market value." If the donation is valued at more than $1,000, the CRA may ask you to get an independent appraisal of the gift's value.
Why should I donate?
"They make you feel good," Safar says of charitable donations. "They do a lot of good for a lot of people, and the government does have an incentive to encourage you to donate."
Aptowitzer says some people have a false belief that tax credits can make donors better off financially, but that's not the case. Your donation won't lower your taxable income, for example.
"They're still made worse off by donating. It's supposed to hurt a little to give," he says. “[But] emotionally speaking, they're made better off."