The charitable donations tax credit is one of the more generous tax credits under our tax system. The federal credit equals:
- 15% of the first $200 of donations in a year;
- 29% on additional donations in the year, except that to the extent you are in the highest tax bracket (over $205,842 of taxable income for 2018), the credit is 33% for all donations that come from income subject to that highest rate of tax.
In 2018, you make $10,000 in charitable donations. Your taxable income is $210,842, which means that $5,000 of that amount is coming from income that is subject to the highest tax bracket.
Your federal credit will be:
15% x $200 = $30;
33% x $5,000 = $1,650; plus
29% x $4,800 = $1,392
On top of that, you will receive a provincial tax credit. This credit depends on your province of residence, bringing the total credit up to 50% or more.
The donation can be claimed in 2018, or alternatively can be carried forward and claimed in any of the next five years.
Special rules on death
If you make charitable donations under your will, or if your executor makes donations out of your estate, special timing rules apply.
Generally, if the donation is made within the first 60 months after your death, the credit can be claimed on your return for the year of death or the immediately preceding year, or by your estate in the year of donation or one of its first three taxation years (in particular, while the estate is a “graduated rate estate”). Alternatively, the credit can be claimed by your estate in the year of donation or for any of the next five taxation years. The donation amount can be shared between you and your estate but cannot be doubled up.
Under your will, you make a $10,000 donation to charity to be paid after your death. You die in 2018. Your estate makes the gift in its third taxation year.
The credit can be claimed on your 2018 or 2017 tax return. Alternatively, the estate can claim the credit in any of its first three taxation years, or carry the donation forward and claim it in any of the subsequent five years.
As a further alternative, you and your estate could split the donation amount and share it amongst any of those years – for example, you might claim $5,000 in the year of death and your estate might claim $5,000 in its first taxation year.
If the donation is made after the 60-month period, the credit cannot be claimed on your personal return. Only your estate can claim the credit, either in the year of donation or in any of the next five taxation years.
If you make the donation while you are alive but in the year of your death, the credit can be claimed on your return for the year of death or the preceding year. Alternatively, your spouse (or common-law partner) can claim the credit in the year of your death. The donation amount can be shared by you and your spouse, but again the credit cannot be doubled up. In this scenario, your estate cannot claim the credit.