Charitable Donation Deductions in Canada
Gifts in Kind & U.S. Donations May Not Count
As a sole proprietorship or partnership filing a T1 income tax return, you can claim on line 340 charitable deductions and gifts of up to 75 percent of your net income (line 236). The exception to this rule relates to the taxpayer’s death; "For the year a person dies and the year before that, this limit is 100 percent of the person's net income"
The maximum amount of charitable donations that a Canadian-controlled corporation filing a T2 income tax return can claim is the same; 75 percent of its net income (line 300).
You cannot claim charitable donations to create or increase a loss but unused charitable donations can be carried forward and used in any of the five following tax years.
What organizations qualify as donees?
The CRA lists the following organizations as eligible to issue official donation receipts:
- registered charities
Registered Canadian amateur athletic associations (RCAAAs)
National arts service organizations
- registered housing corporations resident in Canada set up only to provide low-cost housing for the aged;
- registered municipalities in Canada;
- registered municipal or public bodies performing a function of government in Canada;
- the United Nations and its agencies;
- Foreign charitable organizations that have received a gift from Her Majesty in right of Canada
- registered universities outside Canada that are prescribed to be universities the student body of which ordinarily includes students from Canada;
- Her Majesty in right of Canada, a province, or a territory, and the United Nations and its agencies
Foreign charitable organizations that have received a gift from Her Majesty in right of Canada
What about donations to U.S. charities?
The tax treaty between Canada and the U.S. allows for a deduction of donations made to U.S. charities if your business has U.S. source income. If this is the case you may donate to U.S. charities and claim the eligible amount of U.S. gifts up to 75 percent of your U.S. income reported on your Canadian tax return.
Do gifts (donations in kind) qualify?
A registered charity may issue donation receipts for non-monetary gifts, however, in order to do so, the charity must be able to determine a fair market value (FMV) for the gift, which can be difficult in some cases. The Canada Revenue Agency (CRA) states:
"Generally, if the fair market value of the property is less than $1,000, a member of the registered charity, or another individual, with sufficient knowledge of the property may determine its value. The person who determines the fair market value of the item should be competent and qualified to evaluate the particular property being donated. If the fair market value is expected to be more than $1,000, we strongly recommend that the property be professionally appraised by a third party (that is, someone who is not associated with either the donor or the charity)."
The CRA keeps a close eye on donations in kind to charities due to abuses of the system that have occurred in the past (situations where donors were given tax receipts in excess of the fair market value of the gift). If an audit reveals that a claim for a gift donation was excessive the claim may be disallowed. Charities that engage in such practices risk monetary penalties or loss of charitable status.
For more information on what charitable donations a corporation may make and how a corporation may increase the amount of charitable deductions, it is allowed to claim on its income tax, see the Canada Revenue Agency's T4012: T2 Corporation Income Tax Guide.