Many Canadians give donations to the charitable cause they support. The Canada Revenue Agency (CRA) offers financial incentives to encourage individuals to make larger donations, particularly those in the higher-income bracket. Hence, many wealthy individuals use donations to avoid a significant capital gain tax bill on the sale of their assets.
This surely piqued your interest, as well as that of the CRA. Hence, the agency made specific changes to the Alternative Minimum Tax (AMT) rules to ensure high-income earners pay tax on such alternative income. Before you jump into giving hefty donations, know what you are getting into, how taxes work for donations, and where the CRA can be your friend and where it can be your foe.
What Constitutes a Donation?
Let’s get the definition of donation and charity right.
Charity: The CRA maintains an online database of registered charitable organizations and donees who are qualified to issue donation receipts that can be used to claim non-refundable charitable tax credits. The CRA has scrutinized these charities on specific parameters, such as providing charitable services, conducting activities for the public good, and maintaining financial transparency.
Donation: A donation is any cash or non-cash item given to a qualified charitable organization without expecting direct benefits in return, other than a receipt for the donation.
If you receive any kind of compensation, like merchandise or tickets to a game, in return for the donation, you must deduct the fair market value (FMV) of the gift to calculate your donation amount. For instance, if you donate $500 to a qualified charity and get a $20 gift voucher, your donation amount will be $480.
How Tax Benefits on Charitable Donations Work
The CRA allows individuals to make eligible donations to registered charities and claim a non-refundable tax credit. A tax credit will enable you to reduce your tax bill directly.
Tax Credit Calculation: The tax credit is calculated based on the donation amount and your income tax bracket. For the first $200 donation, a 15% federal tax credit applies. For a donation above $200:
- 29% federal tax credit applies to normal income earners.
- 33% federal tax credit applies to high-income earners falling under the 33% tax bracket (2025 income is above $253,414)
Claim limit for a tax year: Every tax benefit has its limitations. You can claim the tax credit on donations up to 75% of your net income for the year. If you earned $100,000 net income in the 2024 tax year, you could claim a tax credit on donations up to $75,000. However, you can donate more than $75,000 and carry forward the remainder of the tax credit for up to five years.
Exception: You can claim the tax credit on 100% of net income in the year preceding or the year of death, and 100% for cultural property or ecological land.
Married or common-law partner: They can combine their donations to claim a higher tax credit, as the rate increases to 29% on donations above $200.
How To Make the Most of Charitable Tax Credits?
Once you understand how tax works, you can plan your donations to maximize your tax benefits. Suppose your income is set to increase or a higher tax bill is expected in the next few years. You can keep making donations without claiming the tax credit to accumulate a larger sum. You can also club your spouse’s donations and claim the credit when your tax bill is high.
For instance, Peter made a $20,000 donation in 2025, while his wife, Amy, donated $10,000 every year for four consecutive years. Amy falls under the 29% tax bracket and Peter under the 33% bracket.
- Peter’s charitable tax credit: ($200 x 15%) + ($19,800 x 33%) = $6,564
- Amy’s charitable tax credit: ($200 x 15%) + ($39,800 x 29%) = $11,572
- They combine the donations and Peter claims tax credit: ($200 x 15%) + ($59,800 x 33%) = $19,764
How Taxes Work on Non-Cash Charitable Donations
The above tax calculation applies when you make a cash donation—the tax calculation changes when the donation is in-kind.
Property: If you donate real estate, jewelry, or artwork to a qualified charity, you will have to determine the valuation of the property to calculate the donation amount. This will trigger a capital gain tax under AMT. The AMT includes 100% capital gain.
Securities: If you donate publicly traded shares to a qualified charity, you can claim a tax credit on the FMV of the shares on the date of donation and need not pay capital gain tax on it.
Suppose you bought shares worth $1,000, and at the time of donation, their FMV was $10,000. You need not include a $9,000 capital gain in your taxable income. Moreover, you can claim a $2,872 federal tax credit on the $10,000 donation amount.
However, new AMT rules have changed this calculation. Let’s see how.
How Alternative Minimum Tax Alters Your Charitable Tax Credit
The CRA made changes to the AMT in 2024, which altered the calculation of the charitable tax credit. The above calculations were made using the regular income tax calculation. However, high-income earners falling under the 29% tax bracket should calculate their taxes under the regular income tax regime and the AMT regime.
Under the AMT regime, most tax benefits and deductions are removed from taxable income, and any income above $177,882.01 (the fourth tax bracket for 2025) is taxed at a flat rate of 20.5%.
While calculating AMT, you will have to add to your taxable income
- 100% of capital gain on sale of property
- 30% of capital gains on donated shares or stock options
- 20% of charitable donation tax credit
AMT complicates the tax calculation as it has several rules for different types of transactions.
Contact Black and Gill LLP in Etobicoke to Help You with Tax Planning
A skilled tax consultant can help you crunch the numbers, study the ifs and buts of tax laws, and recommend the best type of donation and the right time to claim it in the most tax-efficient manner. At Black and Gill LLP, our tax consultants can provide tax planning and filing services. To learn more about how Black and Gill LLP can provide you with the best tax expertise, contact us online or call us at 416-477-7681.