Tax Help for Charitable Canadians

Giving to charity is a noble thing to do. From a tax viewpoint, it’s also the gift that keeps giving back. However, if you’re claiming charitable donations on this year’s return, you may notice new complexity. Check out our true-to-life scenarios and the tips that follow.

To begin, did you know that the average donation in Canada is now $531, in 2013 dollars? That’s important, because those who give more than $200 get a better tax break. Spouses can also combine their individual donations to get over the $200 threshold on one of the returns.  For the highest credit, all donations should be claimed on one return, not split.

Canadian seniors and the top 10% of donors give the most to charity. Indeed, those aged 55 and over gave 47% of all donations, despite representing only 34% of the population. Seniors age 75 and older gave the most: $726 on average. So don’t forget to take extra time with your clients who are seniors to be sure you have helped them claim all the charitable donations they have made throughout the year.

Top marks for generosity go to the top 25% of all donors, who made 84% of all donations. Of those, the top 10% who give the most in Canada gave 66% of all donations made, for a total of $8.4 Billion. For many of these donors, the new high-income tax bracket that carries a 33% tax rate will affect their claims for donations made.

For the first $200 donated, the federal credit is 15% of the donation.  For donations of more than $200, most Canadians will get a credit for 29% of the amount of the donations over $200.  For high-income Canadians who are taxed at 33%, the rate is 33% on the lesser of the income that is subject to tax at 33% and the donations less $200.

To encourage new donors, a one-time first-time donor credit provides an additional 25% credit for cash or equivalent donations up to $1,000.

In addition, the provinces provide a credit for the first $200 at the lowest provincial rate plus a credit at the highest provincial rate for the remaining donation.  In some cases the rate is less than the highest provincial rate.

Consider the following scenarios to calculate the tax benefits of all that generosity:

Scenario 1: First-Time Donor

Andrew is single and lives in Ontario. He has never claimed a charitable donation credit. In 2016, his income was $75,000 and he made a donation of $800 by cheque.

His federal donation credit is $30 on the first $200, plus $174 on the remaining $600. In addition, as a first-time donor, he is eligible for an additional credit of $200. His total federal credits are, therefore, $404. His Ontario credit is $77.06 for a total credit of $481.06. This amounts to 60.1% of his donation of $800. In other words, his donation cost him only $318.94, while the charity got $800.

Had Andrew donated $1,000, his credit would be $611.38 (an average rate of 61.1%), so the donation would have cost him $388.62.

However, had he donated $1,500, the average rate of his credit would be decreased, because the First Time Donor Super Credit applies only to the first $1,000. His credit for a $1,500 donation would be $812.18 or 54.1% of his donated amount.

Scenario 2: Regular Donor

Marie and Bruno donate regularly to their church. They live in Ontario. In 2016, Bruno earned $95,000 and Marie stayed at home. Their donations for the year totalled $2,500.

Bruno will claim the credit as Marie is not taxable and cannot benefit from a non-refundable tax credit. Bruno’s federal credit is $30 on the first $200 and $667 on the remaining $2,300. His provincial credit is $266.78. His credits for the donation total $963.78 or 38.5% of the donation. His cost for the $2,500 donation is thus $1,536.22, with the governments kicking in the remaining $963.78 in the form of tax reductions.

Scenario 3: High-Income Donor

Margaret is an Ontario resident. Her taxable income for 2016 is $205,000. This means that $5,000 of her income will be taxed at 33% federally. In 2016 she made a charitable donation of $10,000.

Margaret will get a federal credit at 15% on the first $200 of her donation. She will get a credit at 33% for the $5,000 of the donation that represents her income that is taxed at 33%. She will also get a credit at 29% on the remaining $4,800. Therefore, her federal donation credit totals $3,072. Her provincial donation credit is $1,103.78. The cost of the donation to Margaret is thus $5,824.22, with the governments making up the $4,175.78 difference through tax credits (amounting to 41.8% of the donation).

Had Margaret donated only $5,000, the first $200 would still be credited at 15% and the remaining $4,800 would be eligible for the 33% rate. Her total credits would have been $1,614 federal plus $545.78 provincial, for a total of $2,159.78 or 43.2% of the donation.

ADDITIONAL RESOURCES: Knowledge Bureau Calculators including the Income Tax Estimator and the Donations Savings Calculator. To achieve professional certification in developing Investment Strategies in Charitable Giving, please review the curriculum under the MFA-Retirement and Estate Services Specialist™ Program.

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