Last updated: Dec. 9, 2024 

Which Charitable Donations Give You a Tax Break?  

Donations can take many forms, but there are specific rules about what types of donations qualify for a tax break in Canada.  

In this article, we’ll explain the different types of donations, including gifts-in-kind, how to donate services and still get a tax break, and the difference between sponsorship and donation. 

Let’s start by reviewing some basics about charitable giving in Canada. 

Who Can Issue Official Donation Receipts? 

While the terms non-profit and charity are used interchangeably, only a registered charity or other qualified donee can issue donation receipts that qualify for a non-refundable tax credit or deduction. 

The Canada Revenue Agency (CRA) keeps a verified list of charities and certain other qualified donees and updates it daily. Use the list to confirm an organization’s status before donating – if its status is revoked, for example, it cannot issue charitable receipts, and your donation will not qualify for a credit or a deduction. 

Finally, if you receive any benefit from the charity because of your donation, this will affect the value of your tax deduction. 

Determining the Eligible Amount of Your Donation 

It is common for charitable organizations to offer their donors gifts as incentives or to show appreciation (e.g., free concert tickets, gift certificates, artwork, tote bags, etc.). Whatever form these take, the CRA considers them a benefit, and they affect the eligible amount of your donation. 

To determine the eligible amount, you must take the total value of your gift minus the fair market value (FMV) of the benefit you received in return. Make sure that this information is captured on the donation tax slip – it must be on a slip to be claimable! 

Example: Gifts of Appreciation from a Charity 

You donate $1,000 to your local animal shelter, a registered charity. In appreciation, the shelter sends you a personalized thank-you letter, and a tote bag valued at $50. 

• • FMV of your gift: $1,000 
  • Value of the benefit you received: $50 
  • Eligible amount of your gift: $1,000 – $50 = $950 

Using the appropriate federal and provincial rates, you can claim $950 as a charitable donation on your tax return. 

Charitable Tax Benefits for Individuals vs Corporations 

The tax rules and benefits are different for individuals and corporations. 

Individuals Get a Tax Credit 

As an individual, you receive a non-refundable tax credit when you donate to a charity, which directly reduces your tax bill. While rates vary depending on where you live, but in general: 

• Federally: You receive a 15% credit for the first $200 donated and 29% for amounts exceeding that. It’s in your best interest to donate more than $200 so you can maximize the federal credit. (For those individuals who pay the highest rate of tax federally, 33%, they are eligible to receive donation credits at that higher rate).  
• Provincially: Rates vary, but when the federal and provincial rates are combined, the credit can reach up to 49% for some provinces.  
• Limitations: You can claim a maximum of 75% of your net income for the year (100% for cultural property or ecological land and 100% in the year proceeding or the year of death). 
• Carry forward: You can carry forward credits for up to five years. 
• Pool credits: You can pool credits with spouses or common-law partners. 

Corporations Get a Tax Deduction 

Corporations are subject to different tax rates in Canada. When you donate as a corporation, you receive a tax deduction that lowers your taxable income: 

• Claim limit: You can typically claim a maximum of 75% of your annual net income. 
• Carry forward credits: Unused credits can be carried forward for up to five years.  

Depending on your income level and personal tax situation, donating as an individual versus a corporation has advantages. 

Read “Charitable Giving: Personal or From My Corporation [link to FBC story].  

What Types of Donations Can Be Made to Charities? 

There are several ways to contribute to a registered charity or other qualified donee in Canada: 

• Cash Donations: The most straightforward option, providing immediate tax benefits. 
• Property Donations: Non-cash donations include real estate, vehicles, art, or jewelry. Appraisals are often needed to determine the property’s value. 
• Securities Donations: Donating stocks, bonds, or mutual funds can offer potential tax advantages, though the recent Alternative Minimum Tax (AMT) changes will impact the benefits for high-income individuals. 
• Donating Skills or Services: Donating time, skills, effort, and services directly is appreciated, but it usually only qualifies for tax receipts if specific conditions are met (see below). 

Let’s look at specific types of donations and their tax implications.  

Cash Donations  

Cash is the most common donation. However, depending on how the cash is earned, there may be tax implications.  

• Capital Gains Changes: If you earn income from the sale of property, you will trigger capital gains. Recent changes [Link to FBC story, “Demystifying Capital Gains: Understanding the New Inclusion Rates”] to the capital gains inclusion rates significantly impact individuals and corporations and the percentage of capital gain they need to include as taxable income. 
• Alternative Minimum Tax (AMT) Changes: If you’re a high-income earning individual, AMT changes will lessen the tax benefits of your donation. 

Gifts-in-Kind: Non-Cash Donations of Property 

While cash donations are more common, you can also donate gifts-in-kind – a non-cash donation of property. These include high-value items like: 

• Capital or Personal-Use Property: Houses, cars, land
• Valuables: Jewelry, art, antiques 
• Qualifying Securities: Stocks, bonds, or company shares 

Before donating property as an individual, consider these factors: 

• Valuation: Determining the property’s value is crucial. Professional appraisals are typically required to determine an asset’s fair market value (FMV). While you may feel your property is of a higher value, the valuation from the appraisal report what is used for tax purposes. 
• Capital Gains: If you donate capital property, you will trigger capital gains on the FMV for that property. You must report this on your income tax, and benefit return the same year you donated the property.  
• Rules and Regulations: Specific rules apply to distinct types of property for individuals, such as qualifying securities. The rules around Alternative Minimum Tax (AMT) may change the tax benefits of your donation. 
• Paperwork and Records: It is essential that all paperwork is correct and that you keep accurate records in the case of a CRA audit. 

If you are a high-income earner, the recent Alternative Minimum Tax (AMT) changes will impact your charitable giving.  

Read “Alternative Minimum Tax (AMT) Change: Everything You Need to Know” [Link to FBC story] 

Is Volunteer Time Deductible for Tax Purposes? 

You cannot claim volunteer time on your taxes as the CRA does not consider services – whether it’s time, skills or efforts – to be property. By extension, if services are not property, there is no transfer of property ownership when you donate them as there would be with a cash or gift-in-kind donation. Therefore, they’re not gifts that qualify for a donation receipt from the charity. 

Can I Get a Tax Credit for Donating My Services? 

For the donation of services to be considered property, payment must occur.
The only way to get a tax receipt for donating services is to have the charity pay for the services rendered and then donate the same amount back to them. Here’s how it would work: 

1. Enter an agreement with the charity: Just as you would with a paying customer, create a written record, agreement, or contract outlining what services are being provided, the amount being charged, and what will be donated back to the charity. This covers liability on both sides. 
2. You issue an invoice: You issue an invoice for what you would typically charge for the services. Remember to include GST or HST and remit it. 
3. The charity pays you for your services: This creates a record of the service provided and payment made. 
4. You donate the payment back to the charity: This becomes a cash donation, and you can get a tax receipt for this amount (less the GST/HST). 

Remember, both steps – the payment and the donation – must be documented. The CRA recommends using cheques for both transactions to create a clear audit trail. Donations over $200 qualify for a higher tax credit rate. 

Can Volunteers Get Tax Receipts for Expenses? 

No. The CRA has specific rules related to expenses incurred while volunteering and out-of-pocket costs. 

Exceptions: 

• Reimbursement and donation: If a charity reimburses a volunteer for expenses and the volunteer then donates the reimbursement back to the charity, a tax receipt can be issued for the donated amount. 
• Written agreement: The volunteer must provide written consent for the charity to issue a tax receipt instead of giving reimbursement.  

Example: Acceptable Wording for Donating a Reimbursement from a Charity 

Here is the CRA’s example: 

I _______________________ direct that the funds to which I am entitled by way of reimbursement for _______________, and would otherwise be forwarded to me by cash or cheque, be transferred to ______________ as my gift. 

The CRA recommends that all registered charities have a reimbursement policy to provide clarity to volunteers and show that they’re acting responsibly with their status and financial resources. Before you incur any expenses for a charity, check the organization’s policy to understand what you’re getting into before spending any money. 

Sponsorship vs. Donation: Understanding the Difference 

The CRA has very specific criteria about what qualifies as sponsorship, but in general: 

• Sponsorships occur when a business provides financial support to a charity in exchange for advertising or promotional benefits.  
• Donations are gifts to a charity without expecting direct benefits in return. 

Charities can only issue tax receipts for donations, not sponsorships. 

Examples: Donation vs. Sponsorship 

• • Donation: A person donates $100 to a charity, and their name is listed with other donors in a newsletter. This is a donation. 
  • Sponsorship: A company pays $5,000 for its logo to be displayed on a charity’s event banner. This is a sponsorship.
     

Donating to a Non-Profit Without Charitable Status 

While non-profits cannot issue tax receipts, they still perform essential work in our communities – supporting amateur sports, like a youth softball team, or a special event, like a festival or parade. 

If you donate to a non-profit or special event, you can claim this as an advertising or promotional expense for your business if you receive public recognition.  

Example: Parade of Garage Sales 

As a local realtor, you agree to sponsor your neighbourhood’s parade of garage sales as follows: 

• • Expenses incurred: You pay for the signs, register participants through your business website, and purchase promotional ads for the event (print and social). 
  • Benefits received: You are named as title sponsor, and your business name appears on all signage and promotional ads for the event.  

Summary: The sponsorship establishes a benefit for the public promotion of your business. Therefore, the expenses you incur for the event can be claimed as promotion and advertising deductions against your taxable income. 

Key Takeaways: Tax Implications for Charitable Donations in Canada 

Understanding Donation Types 

Before making any kind of donation, make sure you consider the tax implications of your donation: 

Cash Donations 

• Most common and straightforward form of donation. 
• May offer immediate tax benefits. 

Property Donations 

• Includes real estate, vehicles, art, jewelry, and other valuables. 
• Requires professional appraisal to determine value. 
• Potential capital gains tax implications. 
• Specific rules apply based on the property type. 

Securities Donations 

• Involves donating stocks, bonds, or mutual funds. 
• Offers potential tax advantages, but changes to the Alternative Minimum Tax (AMT) and the capital gains inclusion rate need to be considered. 
• Specific rules and conditions apply. 

Donating Time, Skills, Effort 

• They are typically not eligible for tax receipts. 

Donating Services 

• Again, they are not typically eligible for tax receipts. 
• Exceptions exist, but they require specific arrangements and documentation (e.g., if a charity pays you for services, you donate the same amount back to the charity). 

Sponsorships 

• Not eligible for charitable tax receipts. 
• Best approach when donating to a non-profit.
• Involves financial support in exchange for advertising or promotional benefits. 

Remember: Keeping detailed records of your donations is essential for claiming tax deductions. 

Donating as an Individual vs Corporation 

Donating as an individual is usually more advantageous because you receive a tax credit directly applied to your tax bill. However, with changes to AMT and capital gains rules, it is essential to weigh your options carefully – especially if you own a corporation. In some instances, there may be a significant tax advantage in donating through your CCPC. 

Read “Charitable Giving: Personal or From My Corporation.”  

Create a Charitable Tax Strategy: Get Professional Help 

If you plan to make a substantial donation to charity, it’s in your best interest to consult with a tax specialist. Recent tax changes have created far-reaching tax implications, and you want to ensure you choose the option that will create the greatest tax benefit for you while still positively contributing to a worthy cause. 

 Remember, whatever the size of the donations – large or small – always keep detailed records of your donations, including receipts and appraisals for valuable items. 

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