62 How are charitable donations and political donations treated on a tax return? Why are they treated this way?
Arvind Harry
Charitable and Political donations create tax credits on an individual’s tax return. The calculations are as follows:
Charitable Donations (ITA 118.1(1))
For those with taxable income up to the upper federal income threshold ($210,372 for 2019)
- A federal level credit limit will be 15% of the first $200 donations
- 29% of additional donations
For taxable income greater than the upper federal income threshold
- The credit will be 15% of the first $200
- 33% of the lesser of the amount that your taxable income exceeds $210,372 or by the amount your donation exceeds $200
- This increase is to encourage the wealthy to donate more
This is formulized as (A x B) + (C x D) + (E x F), where:
A |
The appropriate percentage for the year (15%) |
B |
The first $200 of the donation |
C |
33% |
D |
The lesser of the amount that either your income exceeds $210,372 or your donation exceeds $200 (only applicable when income exceeds $210,372 limit) |
E |
29% |
F |
The remaining amount of the donation that surpasses $200 |
So, in the formula above, ‘(C X D)’ would only apply to individuals who are taxed at the highest federal marginal tax rate.
Example: John, who has a taxable income of $50,000 donates $800 during 2019. His tax credit would be calculated as follows:
15% of the first $200 = $30
29% of the remaining $600 = $174
$204 ($30+$174) is the amount of his charitable donation tax credit in 2019.
Example: Deepesh has a taxable income of $312,000, he donates $16,000 during the year. What are his tax credits for the year?
15% of the first $200 = $30
33% of the lesser of ($16,000-$200) or ($312,000-$210,372) -> $15,800<$101,628
33%*$15,800 = $5,214
$5,244 ($30+$5,214) is the amount of his charitable donation tax credit in 2019.
An individual can only claim donations up to 75% of their Net Income For Tax Purposes. Additional amounts can be carried forward 5 years.
Political Donations (ITA 127(3))
The political donation federal tax credit is dependent on the amount donated as follows:
$1 to $400: Tax credit equals 75% of the amount (Max $300)
$401 to $750: $300 plus 50% of the amount > $400
$750 to $1,275: $475 plus 33 1/3% of the amount > $750
$1,275 plus: $650 maximum
Why are these rates different than other tax credits?
In general, better tax credit percentages (i.e. greater than 15%) are given to donations to encourage individuals (particularly wealthy individuals) to donate.
Interactive content (Author: Emily Hou, January 2020)
References and Resources:
- Article – “Tax Benefits of Charitable Donations” (Author: Turbotax)
- Article – “Claiming charitable tax credits” (Author: Government of Canada)
- ITA 118.1(3)
January 2020