Charity. You don’t do it to get something, you do it out of the goodness of your heart… but wouldn’t it be great if that goodness was rewarded … just a little bit?
Well, in a lot of cases, it is!
The government, in all its wisdom, decided quite some time ago to try to encourage people to give by handing out a tax break to people who opened their wallets to officially registered charities.
There’s nothing like the words ‘officially registered’ to really take the romance out of a statement, but give them a break… the government isn’t in the romance business. They are in the business of taxes, and if you’re the kind of person who likes to give some money to charity OR you’re thinking of starting, here’s how the whole charitable tax credit thing works.
What is the Charitable Tax Credit?
A tax credit is not the same thing as a tax deduction. It’s way more powerful. If you’d like to learn more I suggest reading up on how tax credits work HERE, but for a short version… a tax credit reduces the amount of tax that you have to pay.
You can get a charitable tax credit if you give money to a whole slew of registered organizations including registered charities, registered athletic organizations, and of course Her Majesty the Queen.
The amount that you get is based on how much you give. Seems logical, right? Well, let’s get into the gritties…
What are the rules?
There are always rules. So many rules. As always, I would suggest that you direct your questions to an accountant (of which I am not), but some of the basics are:
- You can’t make a donation that’s more than 75% of your net income (net income is the same as TAKE HOME PAY)
- You have to have made the donation by December 31st of the year in which you want to get the tax credit
- If you have a spouse or a common-law partner you can pool your donations and claim them all as one happy package (I’ll explain later why that could end up being a really good choice)
How much of a tax credit do I even get (like… in dollars)?
Tax credit calculations are cool. There I said it. But I understand if your eyes glaze over when I go in to the percents and all that craziness. So I’m going to give you a couple of options…
- Stay tuned for the nerdy bit with all the percentages
- Or just go to THIS CALCULATOR that the CRA made. It will give you a really good idea of how big your credit will be and all you have to tell them is: where you live, and how much you gave (and you can skip the next section).
For the nerds:
I do love you for nerding with me.
There are two sides to the charitable tax credit, a federal part and a provincial part. They have some similarities and some differences.
Both of them divide the amount that you give into two chunks.
- The amount up to 200 dollars
- And everything above 200 dollars
You get less of a tax credit for the first 200 dollars you give, and way more for the amount above 200 dollars. This isn’t just some ploy to favour the rich (although it does), it’s to try to encourage you to give more. It’s also why pooling your contributions with your spouse/partner can be a great way to maximize your donation.
The differences are all in the numbers.
For the feds it works like this:
- First 200 dollars: 15% tax credit
- Above 200 dollars: 29% tax credit
For the provinces it works like this:
- They’re all different. UGH. So here’s a chart that shows all the different percentages (bet that calculator is looking pretty good to you right now).
Confused? Let’s run an example.
Are you a SUPER DONOR (it’s actually a real thing)???
There’s an awesome thing out there for first time donors. If you haven’t donated before, you get an EXTRA 25% tax credit!
That means that if we replay the scenario from before, but I’m a first time donor, here’s how it hacks out:
Hot dang, that’s a nice tax credit.
Am I a first time donor?
If you (or your spouse/partner) haven’t made a charitable donation after 2007 then you might qualify, and you should definitely ask your accountant.
- It only applies on a maximum of 1000 dollars
- You can totally pool your donations with your spouse/partner to make an epic super awesome tax credit a reality.
If you want to learn more, the CRA made a really adorable video.
How do I claim a charitable tax credit?
How do you claim anything with the CRA? You NEED A RECEIPT!!!
In this case, an official donation receipt. If you don’t have one, you can’t claim your tax credit.
After that it’s up to you. If you use an accountant, send that receipt over to them, and they’ll do all the work. If you do it yourself then you’ll have to attach your donation receipts when you send in your paperwork to the ole CRA.
ALSO: You DON’T HAVE TO CLAIM A DONATION IN THE YEAR THAT YOU MADE IT.
You can send in the receipt, but choose to not claim it that year. Why would you do that? Because if you’re making small donations you don’t really take advantage of the bigger breaks of tax credits. So you can pool them over up to 3 years, and then claim them all at once.
This is a great way to use the first time donor credit as well. If you can’t get to 1000 dollars in donations all in one year, you can spread it out a few years and then claim it all at once. Fully harnessing the awesome power of your tax credit!!
…. It’s not evil… it’s just good sense :-).
Why should I care about knowing this? Can’t I just get an accountant and never think about it again?
Yes. Yes you could.
But I think it can really help to know how it works, not just to make you a more rounded financial being, or because financial nerds rock, but so that you can plan the way you donate and claim that donation in a way that gives you the best bang for your buck.
So if you skipped most of the article, or you just want a few bullet points to go by here’s what I hope you’ll take away:
- Bigger donations get bigger tax credits (anything over 200 dollars almost doubles your credit)
- You can get bigger donations by waiting to claim your donations over a few years, OR by pooling your donations with your spouse
- If you haven’t donated yet you could be eligible for the SUPER DONOR tax credit
- Make sure you have an official donation receipt (or you’ll be sad at tax time)
Don’t give a rip about any of this? Give anyway…
Don’t just give so you can get a tax credit. That’s not fun.
Give for a thousand reasons because it’s the most rewarding thing you can do with your money.
But don’t knock this stuff either, because the more you can save… the more you can give.