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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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28 Comments

  1. lyndonmaxewell on March 7, 2007 at 4:26 am

    In Singapore, we do have a good number of charity drives running annually too. Seems like you have calculated on how to “kill 2 birds with one stone”. :) That saying, by donating to the charities, and saving back on the tax credit resulting from it.

  2. […] up your receipt amount before making a claim.  Remember that the first $200 donated receives a tax credit at the lowest marginal rate, everything after that is given a tax credit at the highest […]

  3. Eric on April 29, 2008 at 4:18 pm

    Can you elaborate on this? What do you mean you actually gain from making a contribution?

    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.

  4. FrugalTrader on April 29, 2008 at 4:30 pm

    Hey Eric, my wording may have been confusing. What is it that you’re stuck on?

  5. Eric on April 29, 2008 at 4:48 pm

    Thanks for your prompt response.

    When you say 10% more than I paid in taxes, what is it you mean? Do you mean that you are 10% ahead by giving compared to not having given anything?

    The other clarification would be in regards to donating shares. You can contact me directly at windharness at hotmail .com

    We are a non-profit that just received our charity number and we are trying to mount an effective campaign. I would be great to hear from you.

    • FrugalTrader on April 29, 2008 at 7:58 pm

      Hi Eric, sorry, i wasn’t clear in my post. What I meant to say that that when you give to charity, the government wants you to give with pre tax dollars, thus the tax break. However, they give you the tax break on first $200 at the lowest marginal rate, but anything greater than that gets a bigger tax break at the highest rate. So what I was saying was that if you are lower than the highest tax bracket, you would get back more money than you’ve paid to the govt in the form of taxes. That is provided that you give more substantially more than $200 in the year.

      Feel free to contact me via the contact form above.

  6. Eric on April 30, 2008 at 11:22 am

    Thanks FrugalTrader.

    Do you know of a table that, by province and tax bracket, provides a breakdown of the credits received for say a $100 donation?

    I.e.: A quebec resident in bracket X gives $1000, how much will he receive in tax credits?

    Regards,

    E.

  7. FrugalTrader on April 30, 2008 at 2:11 pm

    Eric, the table in the article should give you an approximate answer. For charitable donations, it doesn’t matter what tax bracket you are in. You get a tax credit based on the tax brackets of the province. The first $200 are given a tax credit equivalent to the donation x lowest marginal rate. After $200, it’s the donation x highest marginal rate.

    Read over the article again and try a few calculations.

  8. Cannon_fodder on April 30, 2008 at 2:50 pm

    I think I understand Eric’s confusion and he was not alone. It sounded as though, for example, I am in the lowest tax bracket and I donate more than $200 then I would actually receive more than $200 back from the government meaning a net gain for me.

    I think the closest you can get to an almost no cost charitable donation involves Super Flow Through Shares. I read an example that showed it would be possible for the charitable organization to receive $10,000 in SFTS for a net cost of $800 to a person in a 45% tax bracket .

  9. Meredith on July 20, 2008 at 2:31 am

    Thank you so much for this information!

  10. Jonathan Vlietstra on July 24, 2008 at 8:28 pm

    The problem is that a lot of people actually think you can save money by donating, but as far as I can see that is not true. Granted you get a large portion of the donation back off your taxes, but you cant lose sight of the fact that to get $460 back (as an example) you have to give $1000 away. You are still down $540 than you would be if you did no donation. The true benefit of donating that I can see, is that the chairity gets a lot more than what you lose – ie: it costs you $540 to give them $1000. Please correct me if I am wrong.

    • FrugalTrader on July 24, 2008 at 11:27 pm

      Hi Jonathan, yes you are correct, donating to charities is not a money making scheme. Think about it this way, the money donated to charities is with pre-tax dollars. Whatever money you donate, the government will return to you the tax you paid on that money.

      The way I look at a charitable donation is that the tax return is a side benefit for the good that you are doing.

  11. […] The benefits?  All parties involved will feel good about giving plus you’ll receive a donation tax credit to […]

  12. […] you give to charity or church on a regular or substantial basis ($5,000 or more per year) the following is something […]

  13. […] you give to charity, talk to you kids about why you chose that particular charity. If you sponsor a child through […]

  14. basketbal coach on February 26, 2009 at 9:03 pm

    Hi – just a not – I finished my tax return and your charitable rates table is incorrect for BC, The low rate was 15% on the first 200$ and only 29% on the rest of my donation.

  15. […] A quite note, make sure to get your charitable donations in before the end of the year to take advantage of the Charity Donation Tax Credit. […]

  16. Goodwida on January 13, 2010 at 1:23 pm

    dear basketball coach! this is a 2007 list!

  17. C.Madden on January 15, 2010 at 5:33 am

    Please be advised that the term “Newfie” is a racial slur. The proper term is Newfoundlander.

    • FrugalTrader on January 15, 2010 at 9:54 am

      C. Madden, I thought it was ok to make fun of myself? :) I’m from Newfoundland, but I will adjust the post.

  18. Four Pillars on January 15, 2010 at 1:44 pm

    C. Madden – is “Canuck” a racial slur as well?

  19. DAvid on January 15, 2010 at 5:01 pm

    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

  20. cannon_fodder on January 15, 2010 at 6:23 pm

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

  21. pika pika on March 7, 2011 at 2:22 am

    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?

  22. Geoff on December 17, 2013 at 3:21 pm

    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 ?

    • FrugalTrader on December 17, 2013 at 3:25 pm

      @Geoff, did you donate $40k to a museum? Or did they just give you a receipt for $40k when you donated less? I believe that CRA is cutting down on these schemes and if I were you, I would not claim it.

  23. Geoff on December 17, 2013 at 11:49 pm

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

  24. Dan on December 18, 2013 at 12:41 am

    @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

  25. Geoff on December 18, 2013 at 12:30 pm

    Ok thank you and merry Christmas

  26. FrugalTrader on December 18, 2013 at 1:23 pm

    @Geoff, sorry about the assumption there. Looks like you’ll get a big tax refund this year!

  27. Geoff on December 18, 2013 at 8:30 pm

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

  28. Lynn on January 26, 2016 at 1:45 pm

    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.

    • FrugalTrader on January 26, 2016 at 2:01 pm

      Yes, in order to get a tax receipt, the charity needs to be registered.

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