Filing Your Return -> Donation Tax Credit
Donations Tax Credit Line 349
Income Tax Act s. 118.1(1), 118.1(3)
Up to 75% of a taxpayer's net income can be claimed as donations, except in the year of death or the year preceding death, when 100% of net income can be claimed as donations. The donations limit can also be increased when capital property is donated - see the article regarding donations of capital property. The Quebec provincial tax credit for donations is revised by the QC 2016 Budget, to remove the 75% limitation for 2016 and subsequent taxation years, and to provide a higher tax rate in 2017 and later years, in some circumstances. See Provincial Donation Tax Credits below.
A donation must be received by the charity by December 31, 2015 in order to receive a charitable donation receipt for the 2015 taxation year.
Only donations (gifts) to registered charities and other qualified donees (see the Canada Revenue Agency (CRA) definition for a qualified donee) can be claimed as charitable donations. CRA has a charities registry web page, Charities and Giving, where you can search charities listings to see if a particular charity is a registered charity.
If any "advantage" was received (compensation or other benefits) in return for the donation (e.g., tickets, meals), the eligible gift for purposes of the donation claim is reduced by the value of the advantage received.
When a taxpayer has a spouse or common law partner, a donation made by one of them in the current taxation year or any of the preceding 5 taxation years can normally be claimed by either spouse. This is currently an administrative policy of the CRA, but Bill C-43 includes legislation which would allow this for taxation years 2016 and later.
The tax credit for donations and gifts is in the form of a non-refundable tax credit, and is claimed on Line 349 on Schedule 1 of the federal tax return (Provincial Line 5896). The tax credit for the first $200 of donations is at the lowest personal tax rate (except for Quebec, which uses 20%), and the tax credit for the amount over $200 is at the highest tax rate in 2016 for all provinces and territories except Alberta, New Brunswick and Ontario. Alberta has only one tax rate (10%) for calculating income taxes, but uses 21% as the rate for donations over $200. New Brunswick reduced their highest tax rate a few years ago, but did not reduce the rate used for donations over $200. Ontario increased their highest tax rate in 2012, and again in 2013, but still uses the 2011 highest tax rate for donations over $200. BC added a new temporary tax bracket with a higher tax rate for 2014 and 2015, but was not using this rate for donations.
The December 7 2015 legislative proposals announced by the new government included an amendment to the federal donation tax credit rate for donations over $200 so that the rate will be 33% to the extent that an individual has taxable income that will be taxed at 33%. If the individual has taxable income in 2016 of less than $200,000, the rate for donations over $200 will remain at 29%. For instance, if an individual has taxable income of $220,000 in 2016 and makes a donation of $25,200, the tax credit will be calculated as 15% x $200 plus $20,000 x 33% plus $5,000 x 29%. This applies only to donations made after 2015. Donations made in 2015 and claimed in 2016 or a later year will not be eligible for the 33% tax rate.
The new higher federal tax rate is contrary to what has traditionally been done by provinces and territories that have introduced higher tax rates for high income earners. They have either left the top donation tax credit rate at the old highest tax rate, or have increased it to the new highest tax rate for everyone.
Manitoba's 2016 Fiscal Update proposes to introduce a higher rate of 20.9% for donations over $200, to the extent that an individual has taxable income that exceeds $170,000, the threshold for the new fourth tax rate of 20.9%.
Quebec's 2016 Budget has introduced, for 2017 and later years, a higher rate of 25.75% for donations over $200, to the extent that an individual has taxable income that will be taxed at 25.75%. The QC 2016 Budget also eliminated the 75% limitation on donations.
When a taxpayer has a spouse or common law partner and the combined donations are greater than $200, the donations for both spouses should usually be combined and claimed on one tax return. Check your tax return carefully in relation to donations. It is possible that by claiming all donations on one tax return, the donations may not be completely utilized. If this is the case, you can either carry forward some of the donations, or split the donations between spouses.
By splitting the donation between spouses, you are giving up the higher tax credit rate on $200 of donations, because there will now be $200 of donations at the lower tax credit rate for each spouse, instead of for just one spouse.
Both the Canadian Tax Calculator and the Quebec Tax Calculator will alert you if your donations exceed 75% of net income, or if your donations are not fully utilized. If it says that your donations are not fully utilized, it means that your total non-refundable tax credits are greater than your taxes otherwise payable, so you could reduce your donation claims and still have the same tax result. The calculators do a separate calculation for the federal and provincial taxes in order to produce this message, so it's possible only the provincial taxes are not fully utilizing your donations, or perhaps only the federal taxes are not fully utilizing your donations.
The calculator will also give this message if only one of the taxpayer and spouse has donations that are not fully utilized. So, it could be that the donations are fully utilized for one and not the other.
When donations are not all utilized, the “tax subtotal before donations tax credits, zero if negative” in the Canadian Tax Calculator will be zero in one of the 4 columns shown, and would be negative if not for the “zero if negative” rule.
Donations need not be claimed in the year they are paid. They can be carried forward for up to 5 years. Under the CRA's administrative policy, and as detailed in the CRA Technical Interpretation 2010-0377811E5, it is permissible for a charitable donation that was initially reported on one spouse or common-law partner's return to be transferred to the other spouse or common-law partner in a subsequent year.
Income Tax Act s. 118.1(3.1)
The Federal 2013 Budget introduced a temporary First-time Donor's Super Credit, which is available to an individual if neither the individual nor the individual's spouse or common-law partner has claimed the Charitable Donation Tax Credit (CDTC) or the FDSC in any of the 5 preceding taxation years. For the purpose of this determination, an individual's spouse or common-law partner will be the individual's spouse or common-law partner on December 31 of the taxation year in respect of which the FDSC is claimed.
The FDSC will provide an additional 25% tax credit for a first-time donor on up to $1,000 of donations. This will provide the first-time donor with a 40% federal tax credit for donations of $200 or less, and a 54% federal credit for donations over $200 but not exceeding $1,000. Only donations of money will qualify for the FDSC. First-time donor couples may share the FDSC in a tax year, but the total amount claimed by an individual and spouse cannot exceed the amount that would be allowed if only one were to claim the FDSC.
Only donations of money will qualify for the First-time Donor's Super Credit.
Although donations can be carried forward for up to 5 years, the First-time Donor Super Credit will not apply in a subsequent year, unless none of the donation has already been claimed. S. 118.1(1) defines a first-time donor as a taxpayer who has not claimed a donation tax credit for a preceding taxation year that ends after 2007. The tax credit rate for partial carried-forward donations when claimed in a subsequent year will be the rates in effect for that year.
The FDSC is available for donations made on or after March 21, 2013, and may be claimed only once in the 2013 tax year, or a subsequent tax year before 2018. The FDSC will not be available after 2017.
Note that for one taxpayer to fully utilize the super tax credit in 2015 on a $1,000 donation, employment income of $16,865 or more is required in most provinces. See our Donation Tax Credit Rates table for 2015.
CRA also has information on the First-Time Donor's Super Credit.
Tax Tip: It is usually best to claim all donations on the tax return of one spouse.
Revised: May 27, 2016
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