Whether you prepare your own taxes with retail software or hire a tax professional, you can expect to be asked if you made any charitable contributions in the year. In addition to the good feeling of supporting a worthy cause, there is a potentially large tax benefit to making donations to qualified/registered charities. The tax benefit increases as the size of your donations increases.
The tax benefit comes in the form of a non-refundable tax credit
A tax credit is different from a tax deduction. A tax deduction, such as investment carrying charges, reduces your taxable income. Tax credits reduce the tax, dollar for dollar, not the taxable income on which it is calculated.
Tax credits can be refundable, meaning that the credit will first pay your tax burden and then pay the remainder to you, the taxpayer, even if you have no tax burden. Examples of refundable credits are the Canada Workers Benefit, the Canada Training Credit and the GST/HST Credit.
The majority of tax credits, including the donation tax credit, are non-refundable. The credit first reduces your tax burden as low as zero. The remainder is either lost, as in the case of personal non-refundable tax credits, dividend tax credits, and foreign tax credits, or carried forward to future years, as in the case of donation credits.
The term ‘tax burden’ indicates the amount of tax calculated on your income. Your tax burden is the amount of tax before credits, withholdings, and payments. Some or all of your tax for the year may have been withheld at source or paid by installments. When tax credits reduce your tax burden, they increase the amount of withholdings at source and instalment payments that will be refunded to you.
Calculating your tax burden – tax brackets
Once you have arrived at taxable income, you calculate the basic federal and applicable provincial or territorial tax through a series of tax brackets. The federal tax brackets for 2025 are:
- 14.5% on the first $57,375 of income (mid-2025 reduction from 15% to 14%), plus
- 20.5% on the portion of your income from $57,376 through $114,750, plus
- 26% on your income over $114,750 and up to $177,882, plus
- 29% on your income from $177,883 through $253,414, plus
- 33% on your income remaining over $253,414
It’s as if your income was a layer cake and each layer is subjected to a progressively higher rate of tax.
Provincial and territorial tax is on top of basic federal tax. Ontario and B.C. have the highest combined top rates of tax including federal, provincial and surtaxes. These rates peak at 52%. Remember that the highest rates do not apply to your entire taxable income, just the top bracket (or layer of your layer cake).
Calculating the Donation Tax Credit – Federal First
The majority of the non-refundable tax credits are calculated at 15% of the amounts (basic personal, age, dependents, caregiver, pension income, disability, tuition, allowable medical, etc.). This effectively covers the tax in the lowest bracket.
Donation tax credits have two tiers. The credit for the first $200 in donations is 15% (the lowest tax bracket). The remainder of eligible donations receive a 29% tax credit (second highest tax bracket). If your income is in the highest federal tax bracket of 33%, then your donations over $200 receive a 33% tax credit instead of 29%.
Calculating the Donation Tax Credit – Provincial/Territorial
The provinces generally follow the same formula for the provincial credit. The first $200 receives a credit in the lowest provincial tax bracket. The remainder receives a credit in the second highest tax bracket.
Who Can I Donate to?
First determine if the recipient organization is a qualified donee. The Canada Revenue Agency (CRA) maintains a list on their website. Essentially, these qualified donees are Canadian registered charities, registered journalism, amateur athletic, and arts organizations, registered low-cost housing corporations, Canadian registered municipalities, municipal or public bodies performing a function of government, the United Nations and its agencies, and the government of Canada, provinces, or territories. Universities outside Canada that are registered with the CRA are qualified donees. Foreign charities to which the Government of Canada are also qualified donees. Donations to U.S. charities which would qualify as eligible donees had they been organized in Canada are allowed, but only for Canadians who have sufficient U.S. sourced income to meet the 75% income limit. Most donor advised funds will be qualified donees.
What Can I Donate?
- Cash (cheque, debit, or credit card)
- Appreciated stock/securities
- Tangible personal property
- Real property
- Ecologically sensitive land – carry forward is 10 years instead of 5
When you donate appreciated stock or other securities, your donation is valued at the fair market value on the date of the donation. You do not report a capital gain for regular tax purposes, but you get the higher value for the donation.
If you receive a benefit from your donation – for example, donating to an organization and receiving free Gala tickets – your eligible donation amount is reduced by the fair market value of the benefit received.
Income Limits and Spouses/Partners
Donations to Canadian eligible charities in the amount of up to 75% of net income for the year may be used for the credit. If you have made donations to U.S. eligible organizations, you may only use them to the extent of 75% of your income in the year from U.S. sources. In the year of death, donations are allowed up to 100% of net income on the final return.
If you have a spouse or common-law partner, you can pool or transfer donations between you to optimize your donations and other credits.
Carrying over unused donations and credits
Donations in excess of the 75% of net income limits (world or U.S.) may be carried forward and used in one of the following five years, subject to the 75% limit in that future year. You may choose to carry forward donations to use in a higher income, higher tax year.
Donations of a deceased may be claimed on the final return, carried back to the previous tax return or claimed on any of the three years of the Graduated Rate Estate (GRE) return.
Receipts!
Obtain and keep official receipts in a timely manner. The receipt number is reported on the tax return.
Beware of the federal Alternate Minimum Tax (AMT)
Changes were made to the federal AMT, effective for tax years 2024 and forward, that will reduce the value of the charitable donation credit for affected individuals.
30% of the capital gain on donated appreciated stock will be included in Alternative Minimum Taxable Income (AMTI). Only 80% of the regular donation tax credit is allowable against Alternative Minimum Tax as an AMT donation credit.
Both of the above changes will impact higher income earners with income items such as stock options and capital gains. AMTI includes add-backs for various tax-favored items. Among other things, it includes 100% of stock option income and capital gains on property sold, not donated, instead of the 50% inclusion for regular tax purposes. The AMTI exemption amount is currently $177,882 (2025), and the AMT is 20.5%.
Key Take-Aways
Take credit for qualifying donations with a non-refundable tax credit at both the federal and provincial/territorial level. The credit for the first $200 in eligible donations receives a credit in the lowest tax bracket. The remainder gets a credit at the second highest tax rate unless the taxpayer has income in the highest bracket, in which case, the tax credit rate is the highest tax rate.
Consider donating appreciated stocks and securities and take a donation credit at FMV without having to include the capital gains in income. (Beware AMT)
Eligible donations are generally to Canadian registered charities or eligible donees and are limited to 75% of net income. Donations to qualifying U.S. charities may be creditable, but only up to 75% of U.S. sourced income.
Optimize your donation tax credits by using them within the 5-year carry-forward window and pooling with your spouse or common-law partner.
Before committing to a substantial charitable giving plan, determine if and how the new AMT will affect you.