Tax Benefits of Charitable Giving – Part 1

For those that donate to charity, Canada provides significant tax credits. There are many great reasons to give to charity, but did you know that less than 25% of Canadians who donate to organizations do so to receive a tax credit? Nevertheless, it is important that we understand which tax credits are available, who qualifies for them and any specific limits to these credits.

A gift that receives no payment in return is referred to as a donation. The size of the tax credit depends on the amount of the donation and the donor’s tax bracket. Charitable donations are considered a non -refundable tax credit. On the federal side, the tax credit is 29% of the gift amount if the donor’s income is less than $214,368. If the donor’s income is greater than this amount the federal credit is 33%. In Nova Scotia, the provincial tax credit is 21% so combined the credit is between 50% and 54%. It is worth noting, that for gifts under $200 the credit is 15% federally and 8.79% provincially for a total of 23.79%

There are donation tax credit limits in Nova Scotia and these fall into two categories. The first category is limits during one’s lifetime. A donor is limited to using, in any given year, a credit not greater than 75% of the donor’s net income for tax purposes. If the gift is capital property. The 75% limit is increased by: 25% of the taxable capital gain arising from the gift in the year and 25% of the lessor of: any recapture of capital cost allowance on the property included in the taxpayer’s income in the year, and the property’s capital cost of fair market value (whichever is less).

You do not have to claim on your return for the current year, the eligible amount of gifts you made in the year. It may be more beneficial for you to carry them forward and claim them on your return for any of the next five years. No matter what your choice is, you can claim them only once. You must claim tax credits for gifts you carried forward from a previous year before you claim tax credits for gifts you give in the current year.

The second category are limits made by a Will. The donation limit in the year of death and the immediately preceding year is 100% of the deceased’s net income. If the charitable gifts are claimed in the estate’s tax return, the donation limit is 75% of the net income of the estate. Donation tax credits resulting from charitable gifts made in your will cannot be claimed by your spouse unlike gifts made during your lifetime.

Stay tuned for Part 2 where we discuss the specifics of gifting securities both personally and within a Holding Company.

Be Well Advised