Starting in 2013, there is an added bonus for those who have not claimed charitable donations since 2007. It is called the first time donor tax credit. The only requirement is to make a charitable donation.
The tax deduction for charitable donations is pro-rated so you get the biggest bang for your buck on donations that total more than $200. This can be one donation or several donations added together. There are two ways to maximize this: combine your charitable donations with your spouse's/common-law partner's and report all of them on one tax return, but make sure there are taxes paid or a balance owing. The second way is to carry forward small donations until you get over the $200 threshold and then claim them. Donations can be carried forward for five years.
This new credit will be available for 2013 to 2017. For taxpayers who have never claimed donations or have not claimed any donations since 2007, they will get a bigger deduction. Translation: you get a bigger tax break.
Watch out, though. If you are claiming donations for your spouse or common-law partner, they also have to qualify as a first time donor (no donations claimed since 2007). The tax credit can also be shared between spouses, but the maximum total donation eligible for this credit stays at $1,000. It doesn't double between spouses/common-law partners. The challenge may be to determine if there have been donations claimed since 2007.
The tax deduction is a non-refundable tax credit. This means that you have to pay taxes to get a deduction. If you don't pay taxes or are getting all your taxes back before claiming the donation, the donation will not get you any more money back on your tax return.
Donations can be carried forward for five years. For smaller donation amounts, the challenge will be whether to claim in the current year or carry forward and accumulate the donations until they exceed the $200 threshold so you can get a bigger deduction. Remember: the deduction percentage increases for donations over $200.
Be sure you get a proper donation receipt. Canada Revenue Agency is really particular about this and you can be guaranteed they will be reviewing more donation receipts for the 2013 tax year. In addition, when Canada Revenue Agency reviews large donations they will require a letter confirming your donation from the organization you donated to. They also want to see your proof of payment such as a cancelled cheque.
Thinking of doing an in-kind donation? Be careful as Canada Revenue Agency really picks these apart (think art flip scams).
Best practices: if you are planning to do a large donation first verify the receiver is a legitimate charitable organization (http://www.cra-arc.gc.ca/chrts-gvng/lstngs/menu-eng.html); write a cheque for the donation; get a letter from the organization you made the donation to; and get a proper donation receipt.
For more information on charities, visit CRA's website http://www.cra-arc.gc.ca/chrts-gvng/menu-eng.html
- This document is of a general nature and is for information purposes only. The information does not constitute advice and should be used only in conjunction with the circumstances surrounding your specific situation as discussed with a qualified and knowledgeable accountant such as a CGA. Cheryl Carley CGA CAFM CAFA has been in public practice for 30 years and writes articles covering tax, farm management and business management on a local and national basis.
