How Do Canadian Charitable Tax Credits Work?

In Canada, charitable giving is a way to support the causes we care about and receive tax benefits. The Canadian government encourages philanthropy by offering tax credits to individuals and corporations who donate to registered charities. These tax credits can significantly reduce the amount of tax owed, making charitable giving even more rewarding.

Let’s look at how Canadian charitable tax credits work and the benefits they offer.

What Are Charitable Tax Credits?

Charitable tax credits are a way for the government to incentivize charitable donations. When you donate to a registered Canadian charity, you receive a tax credit that can be used to reduce the taxes you owe.¹

It’s important to note that these credits are nonrefundable, meaning they can only reduce your tax liability to zero. They cannot result in a refund if the amount of the credit exceeds your tax liability.

Types of Donations Eligible for Tax Credits

Not all charitable contributions qualify for tax credits. To be eligible, donations must be made to registered charities or other qualified recipients, as defined by the Canada Revenue Agency (CRA). These include registered charities and other qualified donees.²

Calculating Charitable Tax Credits

The amount of tax credit you receive for your donation depends on the total amount you donate within the tax year. In Canada, the federal government and most provinces offer charitable tax credits, each at its own rate. Here’s a general overview:

Federal Tax Credit: You receive a 15% federal tax credit for the first $200 of your donation. Donations over $200 receive a 29% federal tax credit.³
Provincial Tax Credit: Provinces also offer tax credits that vary from province to province. For instance, Ontario has a rate of 5.05% for the first $200 and 11.16% for amounts above that.³

You add federal and provincial amounts to calculate your total charitable tax credit. Here’s an example:

Let’s say you donated $500 to a registered charity in Ontario.

You receive a 15% federal tax credit for the first $200: $200 × 15% = $30.
For the remaining $300, you receive a 29% federal tax credit: $300 × 29% = $87.
For the first $200, you receive a 5.05% provincial tax credit: $200 × 5.05% = $10.10.
For the remaining $300, you receive an 11.16% provincial tax credit: $300 × 11.16% = $33.48.

Adding these together:
$30 (federal) + $87 (federal) + $10.10 (provincial) + $33.48 (provincial) = $160.58

So, for a $500 donation in Ontario, you would receive a total tax credit of $160.58.

Corporate Charitable Giving

The rules for charitable tax deductions are different for corporations than for individuals. Corporations can deduct eligible charitable donations from their taxable income, reducing the corporate income tax owed. The deduction is limited to 75% of the corporation’s net income for the year, and any excess can be carried forward for up to five years.⁴

Charitable tax credits are a valuable incentive for individuals and corporations to support registered charities. By understanding how these credits work and following strategies to maximize their benefits, donors can make a meaningful impact on the causes they care about while reducing their tax burden.

This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.