I am interested in learning about donation tax credits. How is the value of a donation determined when donating an item? Such as say packaged items to a food bank? What percentage of donations can you claim? How much of the claim do you get back at tax time? Is there a limit for how much you can donate? Can the claim be split up among a married couple?
Donating things to people who need them is not only a kind thing to do, it can be an advantageous thing to do in terms of your income tax filing. Charitable donations are eligible for tax credits which can save you money.
When you make a donation in cash you should receive a receipt for it which will confirm the amount you can claim. However, when you’re donating an item then it’s typically expected you will claim the fair market value (FMV) of the item. The Canada Revenue Agency has an overview of fair market value and determining the value of a donation.
As to what percentage of a donation you can claim, you can claim the whole donation on your tax forms, minus any gift or advantage you receive. The CRA explains advantage with an example as follows: “You donate $1,000 to the Anytown Ballet Company, which is a registered charity. In gratitude, the company provides you with 3 tickets to a show that are valued at $150. You are therefore considered to have received an advantage of $150. The eligible amount of the gift is $850 ($1,000 − $150).”
Basically, you can claim the entire value of your donation on your taxes, subtracting the value of any gifts or reward you received in return.
How much of a tax credit your donations earn will vary. The calculation depends on where you live and how much you donate. The CRA has a helpful chart along with example calculations. The amount you end up claiming can be in the range of about 5% to to 24%.
As to whether there is a limit to how much you can donate, you can donate as much as you want. However, you’ll only be able to claim up to 75% of your net income as donations for income tax purposes. For example, if you are self-employed and you made $120,000 gross, and you paid out $20,000 in expenses, you’d have a net income of $100,000. You could claim up to 75% ($75,000 in this case) in donations for tax credits.
Can you split donations between yourself and your spouse? Yes, you and your spouse (or common law partner) can share donation claims between you.
Additional information on handling donations, which charities are eligible for donations, and determining the value of a gift can be found in the CRA’s document Gifts and Income Tax.
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