Canada's charitable tax credit

A non-refundable tax credit is provided for donations by individuals while a business may claim a tax deduction.

Section 118.1 of the Income Tax Act provides a tax credit to individuals for donations made to registered charities. A business receives a tax deduction.

How does Canada's generous tax credit add up?

The tax credit is in two parts; a federal and a provincial income tax credit. A federal tax credit rate of 33% matching the top tax rate applies to donations that are above the first $200, when an individual's taxable income exceeds $205,842.

The federal credit is calculated as the total of the following:

15% on the first $200 of total donations in the year
33% on whichever of the following amounts is less:
- the amount of the donations for the year above the first $200
- the amount of the taxable income that is over $205,842
29% on the total donations for the year above the first $200, which are not eligible for the 33% rate above

Provincial tax credits vary. Many, like Nova Scotia, provide a credit at the lowest tax rate for donations up to $200, and at the maximum rate for donations above $200. However, a number of provinces offer different ways of calculating the credit.

CRA’s tax credit calculator may be found here.

Charitable tax credit rates for all provinces may be found here.

The maximum combined federal and provincial charitable tax credit (depending on province) is usually in the following range:

first $200 – 20% - 30%
excess over $200 – 45% to 55%

Limits to Charitable Donations

The annual contribution limit is 75% of net income. For gifts of appreciated property this is increased by 25% of the capital gain triggered by the gift. This ensures that 100% of the capital gain will be creditable.

Excess credits may be carried forward and used in any of the following 5 years, providing opportunities for charitable gift planning.

For testamentary gifts the limit is 100% of net income in the year of death. Excess credits may be carried back to the previous year. Credits may also be claimed on the estate tax returns for up to the 3 years of life of the Graduated Rate Estate (GRE). Following the end of the GRE status, credits may be claimed for up to an additional two years.