The Canadian government encourages its population to give generously by offering a Charitable Donations Tax Credit (CDTC). This tax credit is in existence for those who donate to registered charities.
A donation is anything considered to be a gift in which nothing is given in return. These include money, assets or objects of value.
The CRA (Canada Revenue Agency) allows all Canadians to claim up to 29% of all donated amounts. Depending on your province of residence, you may be eligible for up to an additional 24% of all donated amounts.
The CDTC is a non-refundable tax credit. This means that you can only apply any claimable amounts to taxes owing, not taxes refunded.
Qualifying for the Charitable Donations Tax Credit
In order to qualify for the CDTC, you must donate to a registered charity or any public organization that can issue a tax receipt.
The Canadian government’s website offers a searchable online database of registered charities. You can always check with the database to ensure that your donations qualify for the CDTC.
If you donate to a charity or organization that gives you something in return, such an event ticket, you must deduct the value from the donation. The difference can then be claimed.
Claiming Donations on Your Tax Return
Claiming donations on your tax return is one of the least complicated form procedures. Yet, it is still important to understand what information you need and where it goes.
Calculating Charitable Tax Credits
The first step in calculating your charitable tax credit is to determine your eligible amount.
This amount can be claimed for the current applicable tax year but can also be claimed from the previous 5 years (as long as those amounts have never been claimed).
You can calculate your CDTC rate by using the CRA’s charitable donation tax credit calculator.
In order to properly file your charitable donations, you need an accurate record of the donations made. Be sure to keep all receipts from your charitable donations.
Just to be safe, you should hang on to additional documentation in case of a review or audit. These documents include pledge forms, cancelled cheques, credit card statements, stubs and/or bank statements.
Once you have the necessary documents, you will need to fill out a Schedule 9 when you file your taxes.
Filling Out the Schedule 9 Form
Filling out the Schedule 9 form is an easy and straightforward process.
Simply claim your eligible donation amount on line 340 of the Schedule 9 form. Work down through the rest of the form in order to calculate your claimable amount on line 34.
You will then transfer the amount of line 34 to line 349 of your Schedule 1 form.
If you’re confused about tax filing and forms, contact Liu & Associates. We can help you make sense of your filing needs.
Maximizing Your Charitable Donation Credits
We know the spirit of giving donations is to support the causes that need them and we know that those who donate do so out of care and kindness.
However, there’s no denying that there are tax benefits for donating and there’s no reason that those who give should not maximize their charitable donation credits.
Set Up Pre-authorized Donations or Payroll Deductions
Setting up pre-authorized donations or payroll deductions is a quick and easy way to make regular donations. It also helps to make donations trackable.
If you set up a payroll deduction to donate toward a registered charity, you will be provided your total donation amount in box 46 of your T4 slip. That way, there is no need to add up receipts or records of donations.
Combine Your Donations With Your Spouse or Partner
When the total of donations claimed on your taxes exceeds $200, they are eligible for bigger deduction benefits.
You can take advantage of those benefits by combining your donations with your spouse or partner. Claim those pooled donations under the spouse or partner who will receive the larger tax benefit.
Because the CDTC is a non-refundable tax credit, it would be beneficial to claim donations under the spouse who will be owing on their taxes. The donation tax credit can reduce that amount.
Carry Forward Your Donations
You can hold onto unclaimed donation receipts for up to 5 years. It may be worth your while to hang on to them and claim them in a single tax year.
You may want to do this if you are claiming other tax credits, such as tuition or education credits, that will contribute to a refund.
Much like the benefits of pooling donations with your spouse or partner, carrying forward your donations is beneficial if you are expecting to owe on your taxes.
Again, the CDTC will not apply to any refunded amounts.
Consider Giving “Gifts in Kind”
Not all claimable donations have to be monetary.
Donations eligible for the CDTC can also be in the form of physical items. These are “Gifts in Kind” and can include items such as artwork or jewelry and even real estate.
When it comes to claiming Gifts in Kind on your taxes, the objects or property value is at fair market value and are used as the tax credit amount.
Take Advantage of the Charitable Donations Tax Credit
If you regularly make donations, or are looking to start, we can help you organize your CDTC tax information. Contact one of our experienced accountants for more information.