How to figure donations' benefits

National Post

2011-10-01



If you’re like me, chances are that you’ve already received at least half a dozen requests this fall from family, neighbours, co-workers and Facebook friends you haven’t spoken to since Grade 2 who are hoping you’ll donate some money to sponsor them in an upcoming charity walk or run.

Take for example Sunday’s 20th annual Canadian Breast Cancer Foundation CIBC Run for the Cure in which an estimated 170,000 Canadians will hit the streets in 60 locations across Canada to raise funds to combat breast cancer. The CBCF has set up a state-of-the-art website that not only allows participants to electronically solicit online donations via email and social media but also allows runners to monitor their fundraising progress and send out thank you notes as donations are received.

Perhaps one of the most common questions I get asked this charity run season is how to calculate the tax benefit of donating to charity. There is a huge misperception that it’s based on your tax bracket such that the more you earn, the higher the value of your charitable donation receipt. This is generally not true.

Donations made to registered charities give rise to a non-refundable tax credit, both federally and provincially, depending on the amount you give in a calendar year.

Federally, you get a 15% non-refundable credit for the first $200 of annual donations. Anything above that entitles you to a federal tax credit of 29% on the balance. The provinces and territories each have a similar tiered donation credit system.
So if you were donate $500 to charity in 2011, this would entitle you to a federal donation tax credit of $117 — a $30 credit on the first $200 (15% x $200) and a $87 credit on the balance (29% x $300).

In Ontario, for example, you would also get a provincial donation tax credit of 5.05% on the first $200 ($10.10) and an 11.16% credit on the remaining $300 ($33.48) for a total provincial credit of $43.58. Adding this to the federal credit calculated above, we get a total 2011 credit of $160.58 on a $500 donation.

To find out what your credit is worth, check out the Canada Revenue Agency’s nifty online charitable donation tax credit calculator in which you simply select your province of residence and enter the eligible amount of your donations for the year, hit the “Calculate” button and — presto! — the value of your donation credit instantly appears.

In provinces and territories without a high income surtax, the value of your donation credit is independent of your tax bracket and level of income since donations give rise to a credit rather than a deduction from taxable income.

Before the 1987 tax reform, donations did indeed give rise to a deduction from taxable income. This was considered unfair given Canada’s generally progressive tax system and thus the credit system was established.