60 How are charitable donations and political donations treated on a tax return? Why are they treated this way?

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:

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

$209 ($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