The charitable sector of the Canadian economy relies on the generosity of individuals and corporations in order to fund its activities. Many people give because they believe in the cause and feel a passion to share.
In a sense, the federal and provincial governments have created a partial matching system by allowing tax credits for charitable donations, which lowers the net cost to the individual. This better aligns resources to those charitable activities that the population wants to support. Over the past several years, the federal government has made a significant effort to enhance the tax system with respect to charitable giving. While the following comments apply to the federal income tax returns, the provinces generally apply the same rules (except that the rates of the provincial tax credits mirror the provincial tax rates).
The total amount of charitable donations has increased steadily over the years. Statistics Canada released the following data with respect to the 2010 tax year, based on the personal income tax returns filed that year.
|$8,253,210,000||Total amount of donations reported by individuals in 2010|
|24,494,940||Total number of tax returns filed|
|5,742,000||Number of tax returns reporting a charitable donation|
|23%||Percentage of taxpayers reporting a charitable donation|
|$1,437.34||Average donation amount|
|$260.00||Median donation amount|
The median donation is that amount where half of those reporting a charitable donation gave more and half gave less. The region with the highest median donation was Abbotsford-Mission, British Columbia, with $620 — a position that they have held for nine consecutive years.
The actual number of taxpayers who make a charitable donation is likely higher than the above chart shows. First, couples generally group their charitable donation claims together on one of their returns (as explained further below). Additionally, the numbers in the chart are based on donations claimed on tax returns, which will have some leakage because receipts can get lost and some donors do not file returns. As well, there are many charitable donations made in smaller amounts, where receipts are never issued but the quantum of the donations can add up significantly across the total Canadian population.
Charitable donations of up to 75% of net income are eligible for a tax credit in the year. The federal charitable tax credit is 15% on the first $200 per year, and 29% on amounts in excess of $200. This means that a charitable donation of $1,000 would attract a $262 (15% of $200 plus 29% of $800) federal tax credit. For certain gifts in-kind of depreciable and/or other capital property, special rules allow the 75% of net income limit to be increased by 25% of the income generated because of the disposition triggered by the gift in-kind.
Charitable donations can be claimed in the year they are made or carried forward and claimed in any of the next five years. This is advantageous because the federal tax credit does not generate a refund, so any unused or underutilized tax credits can be claimed in a subsequent year when they can be fully used.
Charitable donations made in the year of death, or pursuant to a bequest in a will, can be claimed up to 100% of net income on the deceased’s terminal tax return. Any charitable donations that cannot be used on that terminal return can be carried back one year and claimed on the prior tax return up to 100% of net income in that year.
Administratively, the Canada Revenue Agency allows married or common-law couples to combine their charitable donations and claim all of them on one tax return. This is more efficient because the couple will have only one low threshold (15% on the first $200) on the combined claims.
The CRA keeps a current list of all registered charitable organizations, and that list is accessible to the public on the internet. This is a useful resource when investigating whether a charity is registered or if an individual is looking for more information about the charity, such as its financial data or charitable activities.
E.O. & E.
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Contributors to this edition:
James W. Kraft, cpa, ca, mtax, tep, cfp, clu, ch.f.c.
Deborah Kraft, mtax, tep, cfp, clu, ch.f.c.