Last updated: Jan. 15, 2025 

Charitable Donations for Tax Purposes: Individuals vs Corporations

Building wealth as an individual or owner of a Canadian-controlled private corporation (CCPC) allows you to achieve your financial goals and positively impact the world. Charitable giving offers a powerful way to do both: It provides tax relief while helping a cause close to your heart. 

In the past, it was generally understood that the tax benefit of donating as an individual outweighed that of a corporation. However, recent changes to the Alternative Minimum Tax (AMT) regime in Bill C-69 may reduce the tax benefits for high-income earners.  

In this article, we’ll explain the basics of charitable donations in Canada, what types of donations qualify for tax credits and deductions, and the differences between donating as an individual and a corporation.  

Tax rules surrounding donations, especially substantial ones, can have significant implications. Consulting with a tax specialist before making a considerable donation can help you maximize its value and the tax relief it provides. 

Are Charitable Donations Tax Deductible in Canada? 

Donations to a registered charity or other qualified donee (such as registered national arts service organizations and Canadian amateur athletic associations) create a tax advantage in Canada. Here’s how it works: 

• Individuals: Get a tax credit that directly reduces the tax owed. 
• Corporations: Get a tax deduction, which reduces taxable income, but the overall tax savings might be smaller. 

Who Can Issue Donation Receipts and How to Calculate Your Deduction 

Canadian Charities 

Registered Canadian charities can issue official donation receipts. You can verify a charity’s status on the Canada Revenue Agency’s (CRA) verified list of charities and certain other qualified donees.  

To calculate your tax deduction: 

• Subtract benefits: If you received something in return for your donation (like tickets or merchandise), subtract its fair market value (FMV) from your total donation to calculate the eligible donation amount. 
• Claim your deduction: Use the eligible amount to calculate your charitable tax credit. 

Example: If you donate $100 but receive a $20 gift card, your eligible donation is $80. 

Remember to keep detailed records of your donations, including receipts and any benefits received. 

U.S. Charities 

In Canada, donations to US charities can be eligible for tax credits under specific conditions primarily governed by the Canada-United States Tax Convention Act. 

Eligibility Criteria 

Donations must still be made to “qualified donees to claim a tax credit.” This includes specific U.S. organizations, such as: 

• Prescribed Universities: Universities outside Canada that typically have Canadian students and are registered with the Canada Revenue Agency (CRA). 
• Registered Foreign Charities: Foreign charities to which the Canadian government has made a gift. 
• The United Nations and Its Agencies 
• U.S. Charities Recognized Under the Treaty: U.S. charities that would qualify as registered charities if resident in Canada. 

Income Source Requirements 

For donations to U.S. charities (excluding prescribed universities and certain exceptions), you can claim a tax credit of up to 75% of your net U.S.-source income reported on your Canadian tax return. This includes income such as U.S. dividends or employment income. 

There are some exceptions, however, for allowing claims against Canadian income: 

• Border Commuters: If you live near the Canada-U.S. border, commute to your principal workplace or business in the U.S. throughout the year, and this U.S. employment or business is your primary income source, you may claim donations to U.S. charities up to 75% of your net Canadian income. 
• Alumni Donations: You can claim up to 75% of your net Canadian income for donations to a U.S. college or university where you or a family member (spouse, child, grandchild, sibling) are or were enrolled. 

Documentation and Currency Conversion 

It is crucial to keep accurate records when making a charitable donation. For U.S. donations, ensure you obtain official receipts from the U.S. charity, including details such as the charity’s name, address, registration number, donation date, description, and amount. 

Please remember to convert the donation amount to Canadian dollars using the exchange rate on the donation date to reflect its value accurately for tax purposes. 

Filing Your Tax Return 

You must report your donations on Schedule 9 of your Canadian tax return, adhering to CRA guidelines. Ensure that the total contributions claimed do not exceed the applicable percentage limits of your net income. 

Donations exceeding the annual limit can be carried forward for up to five years. 

Additional Considerations 

Tax laws are complex and subject to change. Please consult a tax professional to ensure you follow the correct rules and maximize your tax benefits. 

By meeting these criteria and maintaining proper documentation, you can claim tax credits for donations to eligible U.S. charities on your Canadian tax return.  

What Types of Gifts Qualify for Charitable Tax Credits? 

Charity donations can include cash and any other type of property where the property transfer is voluntary and goes to a registered charity or other qualified donee. If you are an individual, you will receive a tax credit; corporations receive a tax deduction. 

Common Types of Charitable Donations: 

• Cash: The most straightforward donation. You receive a tax receipt for the total amount donated. 
• Property: Includes real estate, vehicles, art, jewelry, and other valuables. Appraisals are often required to determine a property’s value for tax purposes. 
• Securities: Stocks, bonds, or mutual funds are now subject to new Alternative Minimum Tax (AMT) rules.  
• Skills and Services: Service Donations only qualify for tax receipts if specific conditions are met. 

Each type of donation uses specific rules and has tax implications for individuals and corporations. Here are some important considerations: 

• Valuation: Accurately determining the value of donated property is crucial for tax purposes. Professional appraisals are necessary. 
• Capitals Gains: If you donate property with a capital gain, there are tax implications, especially for high-income earners. 
• Tax Credits/Deduction: The amount of tax credit or deduction you can claim depends on the type of donation and its value. 
• Sponsorship vs. Donation: If you donate as a corporation or business, be careful about the public recognition you receive, or your donation may be considered a sponsorship. 

RELATED: Which Charitable Donations Give You a Tax Break? 

Understanding Charitable Donations for Individuals 

If you file taxes as an individual, your taxable income is subject to the marginal income tax rate, and you will be eligible for federal non-refundable tax credits for donations and gifts. You will also be eligible for provincial tax credits, the amount of which will vary depending on the province you call home. 

Federal Charitable Tax Credits 

Federal charitable tax credits vary depending on your donation amount and income level. Here is how it works: 

• Up to $200: 15% credit for the first $200 donated. 
• Over $200: 29% tax credit (unless in top tax bracket). 
• Top tax bracket: 33% tax credit for amounts over $200. 

 Example – Federal tax credits for a high-income earner 

Let’s say you’re a high-income earner who donates $500 to charity. Any amount you donate under $200 would result in a federal charitable tax credit of 15%. However, as you are in the highest tax bracket and taxed at a federal rate of 33%, you also receive a 33% tax credit for amounts over $200.

• Donation Amount: $500 

• Combined Federal Tax Credit: (15% x $200) + (33% x $300) = $129 

Provincial Charitable Tax Credits 

Provinces have different charitable tax credit rates for donations under $200 and over $200. Depending on the province and income level, the credits can range between 19% and 75%, with high-income earners receiving a larger percentage for donations exceeding $200. 

Example – High-income earner donates $500 in Alberta  

You are a high-come earner in Alberta who donates $500 to charity. To calculate your credit, we apply the following rates: 

• Donations under $200:
  • Federal tax credit: 15% 
  • Alberta tax credit: 75%
• Donations over $200 for high-income earners: 
  • Federal tax credit: 33% 
  • Alberta tax credit: 54% 

 Based on these rates, here is how we figure out your combined provincial and federal tax credits: 

• Federal Tax Credit: 
  • First $200: 15% x $200 = $30 
  • Remaining $300: 33% x $300 = $99 
  • Total federal tax credit: $30 + $99 = $129 

• Alberta Tax Credit:
  • First $200: 75% x $200 = $150 
  • Remaining $300: 54% x $300 = $162 
  • Total Alberta tax credit: $150 + $162 = $312 

• Total Tax Credit: Federal + Provincial: $129 + $312 = $441 

In this example, a high-income earner donating $500 to charity in Alberta would receive a total tax credit of $441. 

Additional Tax Considerations for Individuals  

While your income level, the province you live in and the amount you donate determine the amount of your charitable tax credits, there are also some other considerations: 

• Claim limit: Generally, 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 credits: Unused credits can be carried forward for up to five years.  
• Married or common law: Couples can pool their credits to maximize tax savings. 
• Federal tax credit: Donating $200 or more ensures you qualify for the 29% federal tax credit. Remember, you can combine receipts with spouses and carry forward credits for up to five years. 

If you are a high-income earner, you may be subject to Alternative Minimum Tax (AMT), an alternative tax regime in Canada. 

New Alternative Minimum Tax (AMT) Rules: Less Benefit for Charitable Donations as an Individual 

Understanding AMT: A Quick Overview 

The Alternative Minimum Tax (AMT), introduced in 1986, is an additional tax imposed on individuals and certain trusts with high taxable incomes. It ensures that these taxpayers pay a minimum level of tax, regardless of deductions or credits they might claim under regular income tax rules. 

How AMT Works: 

1. Adjusted Taxable Income (ATI): This is a special calculation of your income where certain deductions and exemptions are removed. This can also be called your AMT base – the amount used to calculate tax owing. 
2. AMT Calculation: A flat tax rate is applied to your ATI, exceeding a specific exemption amount.  
3. Comparison: You pay whichever tax is greater—the AMT or income tax. 

Who is Considered a High-Income Earner Under AMT? 

While there isn’t a minimum threshold specified as part of the AMT changes, when the measures were first introduced as part of Budget 2023, the government said: 

• 99% or more of the AMT will be paid by individuals earning more than $300,000 annually. 
• 80% of the AMT would be paid by those earning more than $1 million per year. 

How AMT Changes Affect Charitable Giving 

The rules around charitable donations will result in fewer tax savings for high-income earners, especially when donating property or qualifying assets. 

As a reminder, donating property or qualifying assets (e.g., selling your company’s stocks to donate to charity or donating a non-ecologically significant piece of land) triggers capital gains because it transfers property ownership. 

When a high-income earner subject to AMT donates any asset that triggers capital gains, new tax implications exist, especially for donated securities like stocks. Here’s what’s different: 

• Reduced charitable donation tax credit: Only 80% of the charitable donation tax credit can be used to offset AMT (down from 100%). 
• Inclusion of capital gains on donated securities: 30% of the capital gain on donated publicly listed securities is now included in the AMT base (up from 0%). 
• Increased capital gains inclusion rate: The AMT now includes 100% of capital gains (up from 80%). 
• Increased AMT rate: The top AMT rate is now 20.5%, further impacting high-income donors (up from 15%). 
• Increased AMT exemption: It is now $173,000 (up from $40,000).  

AMT does not apply to corporations in Canada. 

Tax Planning Strategies in the New AMT Era 

While no two tax situations are the same, here are some potential strategies that may help you maximize the tax benefits of your donations: 

• Donate appreciated assets: When you donate ecological land or culturally significant property, you do not pay capital gains (e.g., ecologically significant land). 
• Gifts in your will: Bequests to charity are still 100% deductible from your estate’s income for the tax year of your passing, allowing you to avoid paying AMT and reduce taxes owed by your estate. 
• Spread out donations: Limit the amount of AMT calculated by spreading out your donations over several years instead of as one lump sum. Remember, any donation of property triggers a capital gain, which increases your taxable income and subjects you to higher AMT.  
• Use your AMT carryover: If you pay more tax under the AMT system than the regular income tax system, you can carry forward the difference as a credit for up to seven years to reduce your regular income tax in future years.  
• Consider corporate donations: AMT does not apply to corporations. When you donate publicly traded securities through a corporation, the tax-free portion of the capital gain goes into the corporation’s Capital Dividend Account (CDA), which is then distributed to shareholders tax-free. 

 If you are a high-income earner, speaking to a tax expert before donating is in your best interest. The expert can help you develop a charitable giving tax strategy. 

RELATED: Alternative Minimum Tax (AMT) Changes: Everything You Need to Know 

Understanding Charitable Donations for Corporations 

While it is generally less common, Canadian-controlled private Corporations (CCPCs) can also make donations, but instead of a tax credit, they receive a tax deduction.  

Corporate tax rates differ depending on where you live, how you were incorporated, and whether your business qualifies for certain tax breaks. For example, CCPCs who claim the small business deduction can pay a net tax rate of only 9%. 

Here’s how it works for corporate donations: 

• Claim limit: Generally, you can claim a maximum of 75% of your annual net income. 
• Carry forward: Unused deductions can carry forward for up to five years.  

Impact of New Tax Inclusion Rules on Donating Corporate Securities 

As with all non-cash donations –property or qualified securities – a change in property ownership due to a sale or deemed disposition, like a gift-in-kind, will trigger capital gains. 

Under the new tax inclusion rates, corporations are subject to the two-thirds or 66.67% inclusion rate on ALL (100%) capital gains. This change results in a more significant portion of an increase (or loss) in a corporation’s taxable income.  

RELATED: Explaining Capital Gains: New Inclusion Rates Simplified 

Despite these changes, donating qualified securities through a corporation may still offer benefits: 

• Lower corporate tax rate: The corporate tax rate is significantly less than the marginal tax rate for individuals. When you consider the corporate tax rate alongside the AMT changes for high-income individuals, there may be situations where gifting as a corporation will still result in a more significant tax advantage. 
• Capital Dividend Account (CDA): When corporations donate publicly traded securities, the tax-free amount of the capital gain can be added to the corporation’s Capital Dividend Account (CDA) – allowing the balance to be paid to shareholders as a tax-free dividend. 
• Tax deduction: Corporations can still claim a tax deduction for the total value of the donated securities up to 75% of their taxable income. 
• Combine deductions: Deductions can still be carried forward and pooled for up to five years.  

Donating as an Individual vs. Corporation: Which is Better? 

Generally, a tax credit (which you receive as an individual/sole proprietorship) is preferred over a tax deduction (which you receive as a corporation) because a tax credit subtracts money directly from your tax bill. As a result, credits create the most significant, most direct impact on your tax burden. 

However, changes in AMT and the capital gains inclusion rate make it less straightforward, especially in years when your income level may make you subject to AMT. 

Remember, the government’s goal under the new AMT rules is to target anyone with an income of $300,000 or more. One good year of business, selling a property asset or your business itself, could trigger AMT. Consult a trusted tax specialist to develop the best tax strategy for you. 

Donating to Charity: The Pros and Cons of Individual vs. Corporation 

Donating as an Individual 

Pros: 

• Direct tax benefits: Receive a personal tax credit, reducing your tax liability. 
• High limitation: Claim up to 75% of your taxable income. 
• Pool or carry forward credits: Unused tax credits can be pooled between spouses and carried forward for up to five years. 

Cons: 

• AMT implications: In certain situations, high-income earners are subject to AMT, reducing tax benefits for charitable donations. 

Donating Through a Corporation 

Pros: 

• Tax deductions: Corporate donations reduce taxable income, potentially leading to tax savings. 
• High limitation: Claim up to 75% of your taxable income. 
• Carry-forward: Unused deductions carry forward for up to five years. 
• Lower tax rate: Generally, the tax rate for corporations is lower than the marginal tax rate for individuals. 
• Capital Dividend Accounts (CDAs): When qualified securities are donated through a corporation, proceeds pass through the corporation’s Capital Dividend Account (CDA), allowing for tax-free distributions to shareholders. 

Cons: 

• Tax deductions: Corporations pay tax on their income before making donations, reducing the overall after-tax benefit compared to individuals who receive a tax credit. 

Conclusion: Large Charitable Donations Require Tax Planning 

There is no one-size-fits-all approach to charitable donations. Factors like income level, tax bracket, and the type of assets being donated must be considered.  

While charitable giving offers different tax advantages for sole proprietors and CCPCs, donating as an individual usually creates the most significant tax benefit. 

That said, high-income earners who want to make substantial property donations or other gifts-in-kind, such as qualified securities, require careful tax planning to understand the implications of the new AMT rules fully. 

A tax specialist can recommend the best type and timing of donations to maximize your tax benefits while supporting your chosen charities. 

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