How to get the most tax benefit from your charitable donations

Give the gift of support (while lowering your taxes)

Charitable donations are one of the few instances when it's OK to expect something in return for a gift. You can be generous and financially savvy, because giving can lead to tax credits that boost your bottom line.

"We can’t forget that we live in a community that supports us and our families," says JR Shaw School of Business Accounting instructor Stacey Cooper. "It’s important to give back by donating."

But it's also important to be smart about giving back, she adds. Here are her tips on ensuring your donation goes to a worthy cause, that the cause reciprocates as it should and that giving has a positive impact on your tax return.

Make sure the charity is legit

doubtful about stuff on the computer“Whenever you make a donation, make sure [it’s to] an actual registered charity that can issue you a receipt,” says Cooper.

Every bona fide charity is listed by Canada Revenue Agency and given a charitable registration number. If it doesn’t have that, it can’t issue you a receipt for your tax return. It may even be fraudulent.

There’s no minimum limit for issuing a receipt, says Cooper, but most charities won’t give one for less than $20.

If you buy it, you can't claim it


Don't expect anything more if you're purchasing an item to support a cause, Cooper says. If you’ve paid for something like a calendar or chocolates, you won't get a receipt that can be put toward your tax return.

If you’ve paid for something ... you won't get a receipt for your tax return.

That said, in some instances, a portion of what you give may be eligible for a tax credit. For example, says Cooper, “if you buy a ticket to a charity dinner for $500 and the actual cost of the meal is $100, you would be issued a receipt for the $400 excess.”

Track your donations

writing a sticky note

Charitable organizations may take up to a few weeks to issue a tax receipt. If you make your donation late in December, you might not receive documentation until early in the new year. That's OK, because donations can be carried forward up to five years.

Just don't forget about them. Best practice, says Cooper, is to “keep track of it for your own purposes.”

Maximize the credit

stacks of canadian coins

If your donations in one year don't add up to more than $200, consider deferring them. A better tax credit makes it worth the wait.

In Alberta, tax credits on donations are calculated at 10% for the first $200 donated, with the remainder credited at 21% (total donations cannot exceed 75% of your income). For example, donate $500 and you’ll get $20 back on the first $200 and $63 on the remaining $300, for a total credit of $83.

The federal government kicks in as well. On that same $500, expect 15% back on the first $200 and 29% on everything thereafter (also with a limit of 75% of your income). This will bring the total, after both levels of credits, to $200.

Within families, the payback can get even better. “Maximize your donations by claiming all of them on a single taxpayer,” says Cooper. Make the most of your credits by bundling all the donations onto the return of the higher earner, which will help reduce the amount of income taxed at higher brackets.

“You’ll get more of the tax credit and more money back in your pocket.”

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