By Olev Edur
My friend suggested that I save my charitable donations for five years and then claim them all together instead of making smaller claims each year. Supposedly this would give me a bigger tax break, but how exactly does that work?
You can continue to donate every year; you need only keep the tax receipts. And you’d get a bigger tax break by saving them up for five years (five is the carry-forward limit) because of the tiered structure of the charitable donation tax credit.
In any given year, the first $200 you donate is accorded a 15 per cent federal tax credit, while anything above $200 is accorded a 29 per cent credit; this credit is 33 per cent to the extent your income exceeds $246,752 (for 2024). The more you can move from the 15 per cent into the 29 (or 33) per cent column, the more tax you save.
If, for example, you were to donate and claim $1,000 in each of five years, you’d earn a 15 per cent credit on the first $200 and 29 per cent on $800 each year, or $1,000 (5 x $200) plus $4,000 (5 x $800) in total over five years. The total credits would work out to $1,310 (15 per cent of $1,000 plus 29 per cent of $4,000).
But if you were to make contributions each year and claim them all in the fifth year, you’d get a 15 per cent credit on $200 and 29 per cent on the remaining $4,800. This would work out to $30 (15 per cent of $200) plus $1,392 (29 per cent of $4,800), for a total $1,422—$112 more than if you were to claim each year.
Furthermore, the provinces and territories have their own tiered donation tax credit structures. In your home province of Ontario, if you were to claim the credits together, you’d net $158 more than if you were to claim yearly.
