The ability to give back to society through charitable donations is a fulfilling experience. Not only do you get a heart-warming feeling, but there are also various financial benefits to donating. More specifically, charitable donations provide generous tax breaks in Canada. Learn more about optimizing your donations below.
Table of contents
- Charitable donations and tax deductions in Canada: An Overview
- How to choose which charity to support
- Best charities to donate to in Canada by charitable impact
- How to make the most of your donation
- How to claim charitable donations in Canada
- I’m strapped for cash, how else can I support charities?
- FAQ: Charitable deductions Canada
Charitable donations and tax deductions in Canada: An Overview
The technical definition of a charitable donation is a gift of cash or property to a nonprofit organization to help them achieve its goals. As a result, the giver of a donation receives no economic value in return, except for generous tax deductions and breaks.
A nonprofit organization (NPO) is a legal entity that is in operation for a collective, public, or social benefit. In contrast, a for-profit organization is a legal entity in operations with the goal of earning financial profit.
In 2020, Canadians donated just over $10.5 million dollars to charities, according to Statistics Canada. Trends show that the older Canadians are, the higher the dollar amount they donate. This makes sense since older individuals tend to have higher disposable incomes than their younger counterparts. With that said, Canadians of all ages make an effort to contribute to a wide variety of causes and organizations. The fact that everyone donates in Canada is a wonderful thing!
How to choose which charity to support
Before making a charitable donation in Canada, it’s wise to do some research and due diligence. First, you may not know what cause you want to support with your donation. Assessing your values can help you choose the appropriate charity. From there, you can find a charity whose cause you believe in and whose legitimacy you trust.
Choosing a cause
There are tons of charities out there that support a variety of causes, from fighting climate change to supporting homeless youth to professional mentorship. The real question is, which cause do you want to support? The answer is absolutely personal — and there are no wrong answers! Here are some things to consider when choosing a cause:
- Do I want to support an international, Canadian, or local cause?
- Is it better to donate to a large or small charity, impact-wise?
- Do I know anyone who volunteers/is part of a charitable organization who I trust and can consult?
- What causes align with my personal values, beliefs, and experience?
Choosing an organization
Once you’ve identified a cause, it’s time to pick a charity. There are a ton of nonprofit organizations out there. Unfortunately, not all of them are legitimate or operating effectively. Here are some tips for performing due diligence on potential charities to support:
- Google search: A simple Google search can provide insight into the charity’s history and legitimacy. Keep an eye out for any shady events or bad reviews. Big flags are a history of fraud or bad behaviour of board members. This is also a good way to learn more about the charity’s efforts, particularly through news or press releases.
- Check for registration: In Canada, charities must formally register with the government to be considered legitimate nonprofits. Ultimately, this provides an extra layer of security to donors. Use this charity lookup tool to check if an organization is registered with the Canadian government. If a charity is not registered, that doesn’t mean you shouldn’t donate. However, it is a greater risk. For example, making a contribution through GoFundMe may be a nice way to give back, but there is no guarantee that your funds are going towards the cause you want to support.
- Scammer red flags: Unfortunately, some scam artists pose as charities in an attempt to take money from unsuspecting individuals. Charities that ask you to wire money, call constantly, publish unclear information, are relatively new, or place unreasonable emotional pressure on you could be scams. Also, anything that feels too good to be true should be taken with a grain of salt, such as statements that 100% of your donation goes to the cause.
Best charities to donate to in Canada by charitable impact
Beyond avoiding fraudulent or illegitimate charities, there is no “best charity.” Obviously, if you’re donating to a cause you believe in and the charity is completely legit, then good on you!
With that said, some charities yield a better impact than others and could be named the “best charities.” As with any other organization, there are ways to assess a charity’s performance and the effectiveness of implementing strategies to achieve charitable goals. This is known as charitable impact.
In a way, the charitable impact is the equivalent of assessing the profitability of a company. In this case, the key performance indicators relate to how effectively a charity is supporting its purpose.
If performance is more important to you than being connected to the cause, check out the below list of organizations, via Charity Intelligence Canada, that had the strongest charitable impact in Canada in 2021:
| Organization | Base of operations | Focus |
|---|---|---|
| Against Malaria Foundation | Toronto, ON | International health |
| Canadian Foodgrains Bank | Winnipeg, MB | Ending global hunger |
| The Citizens Foundation | Oakville, ON | International education |
| East York Learning Experience | Toronto, ON | Education |
| Effect Hope | Markham, ON | International health (focused on neglected tropical diseases) |
| Fresh Start Recovery | Calgary, AB | Addiction recovery |
| Indspire | Ohsweken, ON | Indigenous education |
| JUMP Math | Toronto, ON | Canadian education |
| Lifewater Canada | Thunder Bay, ON | Access to safe water |
| Operation Eyesight | Calgary, AB | International health (focused on preventing blindness and restoring sight) |
FYI: Charity Intelligence Canada releases a top 100 rated charities in Canada list every year.
How to make the most of your donation
If you’re going to be contributing your hard-earned money to a charity, it’s important to make the most of it! Here are our top 5 tips to maximize your donations.
Choose a meaningful cause
Charities are in place to support some kind of social issue or public benefit. For this reason, it’s important that you contribute to a meaningful and important cause. Moreover, if there’s an issue you connect to, that’s a great cause to support.
For example, if you have struggled with mental illness at any point in your life, giving to an organization that focuses on mental health is a good choice. Or, maybe you’re really troubled by the environmental state of the world and want to give to an organization that fights climate change.
Try recurring donations
In general, you can either donate a one-time lump sum to a charity or set up recurring donations. Either way, you’re giving back, but recurring donations provide more consistency and revenue predictability to charities. In addition, you can factor a recurring donation into your monthly budget.
Claim your donation tax credits
Making a donation comes with a warm and fuzzy feeling, but also generous tax breaks. In Canada, only donations made to registered charities are eligible for tax credits. Furthermore, only registered charities can issue tax receipts which are required documentation to take advantage of the charitable donation tax credit in Canada.
Anytime you make a charitable donation in Canada, be sure to get a tax receipt from the charity. In addition, be sure to look up if the charity is registered on the Government of Canada website. If the charity is not registered, your donation will not be eligible for the tax credit.
The exact amount of donation tax credits depends on various factors. Check out this Canada Helps deductions calculator to estimate the amount of your charitable tax credit.
Federal political contributions in Canada
Did you know: If you contribute to a registered federal political party or a candidate for election to the House of Commons, you can claim the federal political contribution tax credit. As long as you have an official contribution receipt, you can claim 75% of the first $400 you contributed, 50% for any amount between $400 and $750, and 33.3% for anything over $750. The maximum amount you can claim is $1,275 — which turns into a maximum credit of $650.
Donate your investments and/or securities
Charitable donations in Canada are not limited to cold hard cash. You can also donate your investments and/or securities to charities. Indeed, this is a good strategy if you want to support the longevity of an organization.
In addition, you can also donate property or other non-cash items to charities. For example, some charities accept gift cards, supplies, furniture, equipment, and other non-cash items as donations. Importantly, just be sure that your non-cash donation is useful to the organization’s cause. For example, if you want to support your local humane society, consider donating pet food, kitty litter, treats, leashes, pet carriers, and so on. Many organizations — you’ll often see this with homeless shelters and animal shelters — will keep a list of items they need, or you can simply get in touch to make sure you’re donating necessary items. Just make sure you only donate brand new or very gently used items!
In most cases, non-cash donations are still eligible for a tax receipt which means you can still take advantage of tax credits. These types of donations are known as ‘gifts-in-kind’ charitable donations. Charities usually estimate the value of what’s being donated, then issue a tax receipt for that amount.
Consider carrying your donation forward
If you made a substantial donation one year, you do not have to claim it all on your tax return in that year. Instead, you can carry forward the donation to future tax years. In order to be eligible to carry forward charitable donations, the only requirement is you donate $200 or more in one year. The ability to carry forward donations is a benefit because you can optimize your tax refund or payable. The only thing you can’t carry forward is political contributions.
Related Reading – Marginal Tax vs Average Tax: Understanding Canadian Tax Brackets
How to claim charitable donations in Canada
You might be wondering, are donations tax-deductible in Canada? The answer is yes! Because charitable donations provide generous tax breaks in Canada, there is a process to make a claim. The main thing the Canadian government wants to ensure is donations are going to legitimate charities and refunds are issued for those donations.
How do I calculate my charitable tax credits?
In Canada, there are tax credits at the federal and provincial/territorial levels.
| Province | Tax rate for first $200 | Tax rate for amounts over $200 | Highest tax rate |
|---|---|---|---|
| Federal | 15% | 29% | 33% |
| Alberta | 10% | 21% | N/A |
| British Columbia | 5.06% | 16.8% | 20.50% |
| Manitoba | 10.8% | 17.4% | N/A |
| New Brunswick | 9.68% | 17.95% | N/A |
| Newfoundland | 8.7% | 18.3% | N/A |
| Nova Scotia | 8.79% | 21% | N/A |
| Northwest Territories | 5.9% | 14.05% | N/A |
| Nunavut | 4% | 11.5% | N/A |
| Ontario | 5.05% | 11.16% | N/A |
| Prince Edward Island | 9.8% | 16.7% | N/A |
| Quebec* | 20% | 24% | 25.75% |
| Saskatchewan | 10.5% | 14.5% | N/A |
| Yukon | 6.4% | 12.8% | N/A |
Let’s take a look at an example. Luciano is a resident of Nunavut and made a total donation of $500 to a local, registered charity in 2021.
Federal tax credit:
First $200: $200 x 15% = $30
Amount over $200: $300 x 29% = $87
Total federal tax credit: $30 + $87 = $117
Nunavut tax credit:
First $200: $200 x 4% = $8
Amount over $200: $300 x 11.5% = $34.50
Total territorial tax credit: $8 + $34.50 = $42.50
Grand total of tax credit: $117 + $42.50 = $159.50
Luciano would receive back $159.50 in tax credits for their donations in 2021.
Most tax software options will have a space for you to simply fill in the donation amounts and they’ll do the calculations for you. When filing your taxes by paper, you’ll need to fill out the Schedule 9 form, making sure you attach official receipts/documentation.
What documents do I need to claim credits?
You must have an official tax receipt from the charity to report a charitable donation tax credit in Canada. The receipt reflects how much you donated and other key information about the charity, including their registered charity number.
Only registered charities have the authority to issue official tax receipts in Canada. If you donated to an unregistered charity, unfortunately, you cannot claim the tax credit.
I’m strapped for cash, how else can I support charities?
If your budget or savings doesn’t allow for cash donations to a charity, you can contribute your time and energy to a charity through volunteering. Not only are you giving back to the cause, but it’s also a great way to get involved in your local community!
FAQ: Charitable deductions Canada
How much do charitable donations reduce taxes in Canada?
The amount of the charitable donation tax credit depends on the amount of your donation and the tax rate in your province or territory. Generally speaking, charitable donation tax credits are quite generous and can significantly reduce your tax payable.
How many charitable donations can I claim?
You can claim as many as you’d like! The only limit the Canada Revenue Agency has is 75% of your net income in one year. This threshold is quite high and it is unlikely you’d surpass this amount. For example, if your net income is $50,000, the maximum amount of charitable donations you can claim is $37,500 ($50,000 x 75%).
What percentage of charitable donations are tax-deductible in Canada?
The entire amount, or 100% of your charitable donations, is tax-deductible in Canada. Accordingly, the tax credit rate varies based on where you reside in Canada. The maximum tax credit rate at the federal level is 33% of your total charitable donations.
Which spouse should claim charitable donations?
First off, yes, you can transfer donation credits to a spouse or common-law partner.
Since charitable donation tax credits are so generous, it’s ideal if the higher-earning spouse claims them. It will have a greater effect on reducing tax payable than if the lower-earning spouse were to claim it.
Are US charitable donations tax-deductible in Canada?
You can only claim the tax credit on US-based charity donations if you earned US-source income. Furthermore, the maximum you can claim in charitable donation tax credits is 75% of your US-source income. If you didn’t earn any income from US sources, you cannot claim the tax credit.