In the public mind, the idea of tax credits for giving to ‘good causes’ sometimes leads to confusion and conflation of charitable tax credits and political tax credits. The truth is that charities and political causes are legally very distinct concepts (there is no such thing as a political charity) and although an individual can get tax credits for donating to both, the schemes that govern the reporting and calculation of these credits are quite different.
With the holiday season upon us, many Canadians are turning their minds to both good-will and the end of the tax year. The next time you reach for your wallet to make a donation or contribution, think back on this summary of the differences between the two and reflect on what the tax implications will be.
The facts discussed here apply only to donations and contributions made by individuals. This is just a summary, and certain other rules may apply.
Charitable Donation Tax Credits
CDTCs are issued partly by the federal government and partly by your provincial or territorial government. The credits are claimed on the basis of official charitable donation tax receipts and are non-refundable.
Who Can I Donate To?
These receipts can only be issued by “qualified donees”, which are the following types of organizations:
- Registered Canadian charities
- Registered Canadian amateur athletic associations (RCAAAs)
- Registered national arts services organizations (RNASOs)
- The United Nations and its agencies
- Certain listed housing corporations
- Certain listed foreign universities
- Certain listed foreign charitable organizations
- The federal, provincial and territorial governments, and
- Canadian municipalities and certain public bodies.
What Can I Claim?
Receipts are available for donations of money, goods, and capital property such as stocks and bonds, but not services.
You can claim credits worth up to 75% of your net income in a year. Credits can be carried forward into any of the next 5 years after the year in which the donation was made. You can claim donations made by your spouse or common-law partner, as long as they do not also claim that portion.
The amount on your receipt will be the ‘eligible amount’ of your donation, meaning that it will not include any advantage you got for making the donation. For example, if you donate $50 and receive a $20 hat in return as a ‘thank you’, your receipt should be for $30. For donations of goods, the receipt should be for the amount of the property’s fair market value.
How Much Will I Get Back?
The rates are different at the federal and provincial/territorial levels, and they change every year. In general, there is one rate for the first $200 of donations and another rate for anything above that.
In 2014, the federal rate is 15% for amounts up to $200 and 29% for amounts above that. The provinces and territories all have their own rates, which vary significantly. The CRA provides a chart of the provincial/territorial rates here.
The rates apply in aggregate to all the donations you are claiming in a year. So, for example, if you made 12 monthly donations of $100, your total for the year is $1200, and you will get the “over $200” rate on $1000. You can get a basic idea of what tax credits you will receive on various donation amounts by using the calculator provided by the CRA here.
Note: for donations made after March 20, 2013, people who have not received any charitable donation tax credits since 2007 may be eligible for the “First-Time Donor’s Super Credit” which allows an extra federal credit of 25% on the first $1000 of donations of money.
Political Contribution Tax Credits
Political contribution tax credits are issued totally separately by the federal government and provincial/territorial governments, and the two levels have their own rules about what can be claimed.
Who Can I Contribute To?
You can get federal tax credits for contributing to federal registered political parties, federal registered electoral district associations, and candidates for federal office.
At the provincial/territorial level, the rules vary as to whom you can get credits for contributing to. Generally, this includes political parties registered in that province/territory, candidates seeking election to the provincial/territorial legislature, and sometimes provincial/territorial constituency associations.
What Can I Claim?
You can only claim contributions of money. They are subject to the same rule about ‘eligible amounts’ as described for charitable donations above. The yearly limits vary, as discussed in the next section.
How Much Will I Get Back?
Federally, the 2014 credits for donating to federal parties/associations/candidates are as follow:
- For contributions up to $400: 75%
- For contributions between $400 and $750: 50% of the amount above $400, plus $300
- For contributions over $750: the lesser of: 33.333% of the amount above $750, plus $475; or $650
The federal contribution limits are $1200/year to each registered political party, $1200/year to all registered electoral district associations, nomination contestants, and registered party candidates in the aggregate, $1200/year to each independent candidate, and $1200/year to all contestants in a federal leadership contest in the aggregate.
Provinces and territories each have their own system. Rates, limits, and refundability all vary. In BC and Ontario, contributions can be claimed by either spouse or common-law partner, but not in any other province/territory. All provincial credits are non-refundable except in Ontario and Nunavut; this means that in those two places you will receive the value of your claimed credits even if you owe no tax in that year.
An Exercise in Comparison
As we have seen, political contributions are more limited than charitable donations in maximums (set dollar amounts as opposed to percentage of income) and in types of claimable gifts (money only, as opposed to goods and capital property). This, along with the great variability in provincial rates for both charitable donations and political contributions, makes it difficult to meaningfully compare the value of one type of credit versus another.
However, for the sake of exercise, let us take the example of an Ontarian with $1000 burning a hole in her pocket at the end of 2014, just waiting to be given away. How will her credits stack up if she gives it to a federal political party as opposed to a registered charity?
- If she makes a $1000 cash contribution to a federal political party:
- ($250 x 33.33%) + $475 = $558.34
- If she makes a $1000 cash donation to a registered charity:
- Ontario portion: ($200 x 5.05%) + ($800 x 11.16%) = $99.38
- Federal portion:* ($200 x 15%) + ($800 x 29%) = $262
- Total: $361.38
*Assuming she is not a first-time charitable donor
We hope this brief summary has been illuminating. If you’re planning to make significant donations or contributions, it may be worthwhile to speak with a knowledgeable tax planner. Happy giving, and make sure to keep all your receipts for at least 5 years!