All About Charitable Donations and Taxes

Green, red, and purple gift boxes; highlighting charitable donations and taxes

Charitable Donations

Making charitable donations is an effective way of reducing your tax bill and also supporting good causes. Here’s a quick overview of how donations affect your taxes:

    1. Any donations made to registered charities are eligible. They should provide you with an official income tax receipt for all of your donations.
    2. In BC, the first $200 of donations qualifies for a 20.06% tax credit. This equals a tax credit of $40.12. So for the first $200 donated, you save $40.12 in taxes.
    3. In BC, any donations above $200 yield a 43.70% tax credit. This equals a tax credit of $43.70 for every $100 donated in excess of $200.
    4. The donation tax credit is classified as a ‘non-refundable’ tax credit, which means that it can’t be carried forward to next year or paid to you if you don’t have a big enough tax bill to use it up.
      1. The term ‘tax bill’ above relates to the total tax owing before any source deductions off pay cheques or installment payments are deducted. For example, if you made $60,000 and your estimated tax bill or taxes payable is $11,489, then you could apply for the donation tax credit against the taxes payable. So if you have a donation tax credit of $83.82 (by making donations totalling $300), you would subtract this from the taxes payable to reduce the taxes payable to $11,405.18. If you had $12,000 of tax deductions taken off your paycheques, then this would be applied against your final taxes payable and you would receive a refund of $594.82.
      2. If you don’t have enough of a tax bill to use the credits, then you can transfer them to your spouse to use up or you can simply not claim the donations on this year’s taxes and use them in any of the next 5 years.
      3. TIP: If you file your taxes as a married or common-law couple, then you save more in taxes if only one spouse claims all of the donations.
    5. There is an upper limit to making donations in regards to minimizing your taxes. Donation tax credits are limited to 75% of your net income in the year.

Unclaimed Donations

It’s also good to note that you can claim any previously unclaimed donations made in the last 5 years on this year’s taxes. So if you find a donation receipt in your records that wasn’t claimed in any of the last 5 years of taxes, then you can go ahead and claim it this year. This also applies for any donations that your spouse made in the last 5 years too.

In addition to the good will of making donations, there are also significant tax savings that can be created as shown above. I should also point out that if you can use them in your personal taxes then it is more beneficial for you to claim donations personally as opposed to being claimed as expenses in your corporation if you own an incorporated business.

Contact us to learn more about how charitable donations could affect your business.