Charitable Donation Tax Credit – Part 1 (How it Works)

I’m a big fan of donating or tithing to charity. As I mentioned in my “financial goals for 2007” I’m trying to increase my donations this year to about $1200 ($100/month) from the $500 donated in 2006. Our ultimate goal though is to donate 10% of our gross salary to charity which today would be about $11,000/year or around $920/month.

I’m sure most of you know that in Canada, there is a Donation Tax Credit for all donations made to a registered Canadian Charity. As stated by Margot Bai in her book “Spend Smarter, Save Bigger”, the donation tax credit is the government’s way of ensuring that the we donate with pre-tax dollars. In other words, they don’t want us to pay tax on the money that we donate to registered charities.

Donation Tax Credit

The donation tax credit gives a return equivalent to the lowest marginal tax rate (in your province) x $200 on the first $200 that you donate, and the highest marginal tax rate tax credit on the remainder. Below is a table of the lowest and highest marginal tax rate for 2007 by province/territory:

Province Low High
Alberta 25.5% 39.00%
British Columbia 21.20% 43.70%
Manitoba 26.40% 46.40%
New Brunswick 25.18% 46.84%
NF & LAB 26.07% 48.64%
Northwest Terr. 21.40% 43.05%
Nova Scotia 24.29% 48.25%
Nunavut 19.50% 40.50%
Ontario 21.55% 46.41%
PEI 25.30% 47.37%
Quebec 28.94% 48.22%
Saskatchewan 26.50% 44.00%
Yukon 22.54% 42.40%

For example, if a resident Newfoundlander donates to charity in 2007, the lowest marginal tax rate would be 26.07% and the highest marginal tax rate would be 48.64% (taxtips.ca). If this Newfoundlander donated $1000 to charity that year, he would receive ($200 x 26.07%) + ($800 x 48.64%) = $441.26 as a tax credit for that year.

For those of you NOT in the highest tax bracket, you will actually GAIN by the tax credit given to you by the government. My current marginal tax rate is around 38%. If I donate to charity, I will get a tax credit of 48.64% (on everything over $200), which is almost 10% more than I paid in taxes.

How to Donate

A good number of the larger registered charities have a website that accept donations online. However, there are also a number of charities that do not have an online payment system on their website. If this is the case, then you can use CanadaHelps.org which is a one-stop shop for donating to Canadian charities online. Charities large and small are usually listed with them. They basically take the online payment for charities, keep 3% for transactions costs, and email you an electronic receipt. Thanks to Canadian Financial DIY for pointing out CanadaHelps.org to me.

In the next article (part 2), we’ll talk about some of the strategies that will maximize your donation tax credit return.

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FT

FT is the founder and editor of Million Dollar Journey (est. 2006). Through various financial strategies outlined on this site, he grew his net worth from $200,000 in 2006 to $1,000,000 by 2014. You can read more about him here.
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Lynn
5 years ago

Does it have to be a registered charity to get the tax break? And if you don’t have recipients from the registered charities for the donation can it be considered income? Is there any way around this.

Geoff
7 years ago

Just one more question can I divide it between myself and my wife?

Geoff
7 years ago

Ok thank you and merry Christmas

Dan
7 years ago

@Geoff you can only claim up to 75% of your net income for the year unless the piece is certified cultural property in which case it’s 100%. If and when you do claim it, be sure to attach the receipt as CRA will definitely ask for it

Geoff
7 years ago

No I donated 40k in artifacts that have been in my fathers safe for 45years

Geoff
7 years ago

Ok so I just donated to a museum and they gave me $40,000 tax credit what would I make on my taxes on this as I live in Ontario and make $33,000 a year ?

pika pika
10 years ago

I’m trying to write a speech about donating (cheese i know)
so all this is saying is that when giving away money you get some of it back.
and if you give away lots of money you get more of it back.
right?

cannon_fodder
11 years ago

Wouldn’t it be an ethnic slur rather than racial?

DAvid
11 years ago

Four Pillars — to my knowledge, no, the term “Canuck” is not. You can read the history C. Madden refers to at: http://www.argentia.org/newfie.htm and possibly better understand the angst.

My father, and many other Townies who grew up through the period of US occupancy of Newfoundland are well able to corroborate the effect of the story above.

DAvid