Donations received by a registered charity by December 31st can be claimed as charitable donations for that year. A receipt must be issued by the charity.
Search the Canada Revenue Agency ("CRA") charities registry web page here to ensure that your charity is a registered charity.
The Donation Tax Credit is calculated as follows:
- 15% on the first $200 of donations
- 29% on donations over $200
- 33% on donations to the extent that the individual has taxable income that is taxed at 33% (ie. over $200,000)
How to Optimize your Donation Tax Credit
Given that a higher rate (29%) is used for donations over $200, when a taxpayer has a spouse or common law partner and the combined donations are greater than $200, the donations for both spouses should be combined and claimed on one tax return.
If donations are claimed separately, each person would need to clear the $200 threshold at 15%, before being able to access the 29% tax credit rate.
How to REALLY Optimize your Donation Tax Credit
Donations do not need to be claimed in the year they are paid; they can be carried forward for up to 5 years. This means that you can claim five years' worth of credits in Year 5 and get more back at 29%.
For example, you donate $100 every year to your preferred charities.
If you claim the donation tax credit every year, you would get back $15 ($100 x 15%) every year. In Year 5, you would have received $75 ($15 x 5 years) in total credits.
If you waited until Year 5 to claim the donations, you would receive $0 every year until Year 5, when you would receive $117 ($200 x 15% + $300 x 29%). That's $42 more!
Combine this with the amounts that your spouse has donated and you've effectively doubled the tax credit that you can get back.
Get in Touch with us to find out how we can help you put more money back in your pocket!