Charitable Giving Matters

 

Coleford believes in giving back to the community and so do many of our client families through generous donations to worthy causes.

We also believe philanthropy should be intentional, coordinated and integrated into broader tax and estate planning for the good of both the charitable recipient and the donor. Why? The same donation amount can produce meaningfully different outcomes. That’s because Canada’s charitable donation regime is designed to support generosity, but factors such as the timing of a claim, who claims it, and what assets are donated can materially change both the after‑tax cost and the net dollars that reach the charity. In simple terms, saving tax makes more dollars available to give.

In this article, we present an overview of relevant tax concepts and giving strategies to consider as you plan your philanthropic activities. As tax rules are nuanced, and outcomes depend on income, asset type, timing, and documentation, please consult your tax and legal advisors before implementing any strategy to ensure maximum benefit for you and your chosen charity.

1. Take credit

Canadians who make eligible charitable donations can claim a non‑refundable tax credit, which reduces taxes payable and can ultimately liberate more capital to donate.

How federal donation tax credit works

If your income exceeds the top federal income tax bracket ($258,482 for 2026), you receive a federal tax credit of:

• 14% on the first $200 of donations claimed in a tax year
• 33% on amounts over $200 on the amount of taxable income that is above $258,482 (e.g. taxable income of $300,000, then the 33% applies to $41,318 of the charitable gift)
• 29% on the remaining amount

 If your income is below the top federal tax bracket (e.g. less than $258,482 for 2026), you receive a federal tax credit of:

• 14% on the first $200 of donations claimed in a tax year
• 29% on the remaining amount

How provincial donation tax credit works

Each province and territory provides an additional donation tax credit.  While rates vary, most jurisdictions mirror the federal structure with:

• a lower tax credit on the first $200 donated (Ontario – 5.05% on the first $200)
• a higher rate on amounts over $200 (Ontario – 11.16% on amounts over $200).

When an Ontario resident combines both the Federal and Ontario tax credits, the tax credit recovered is typically 40% to 44% of the donation.

2. Know your limits

Donations claimed in a single year are generally limited to 75% of net income. In other words, if an individual with net income of $500,000 makes a $400,000 donation, they can only claim $375,000 (75% of income) in that year, leaving $25,000 to be carried forward and $125,000 of taxable income.

However, the situation changes in the year of death of this individual as the entire $400,000 donation can be claimed, reducing taxable income to $100,000. Or, if the donation in the year of death was $500,000, all of that income could be offset, eliminating taxable income altogether. This higher limit can be particularly valuable, when large deemed capital gains often create significant tax liability in the year of death.

3. Plan your philanthropy: pooling, carry forwards, gifts and RRIFs

Spousal pooling, carry-forward donations, gifts-in-kind and gifting from a RRIF are all permitted under Canada’s income tax system, and all are valuable strategies to consider.

How gifts-in-kind donations work:

If you hold publicly traded securities with large, unrealized gains, donating them in kind can be one of the most tax‑efficient ways to give, as this example shows.

Jennifer donates $1,000 worth of securities with $250 of unrealized gain. Assuming Jennifer is in the top tax bracket, two things happen: she avoids paying $75 of capital gains tax on the $250 unrealized gain because the charity receives the security and sells it tax-free. Jennifer then gets a $391.38 charitable tax credit for her $1,000 donation for total savings of $466.38.

The takeaway is that when giving is large, donating securities can reduce the after‑tax cost to the donor, often materially, while increasing the dollars reaching the charity.

 How pooling or “one family, one strategy” works: 

In Canada, spouses (and common‑law partners) can pool donation receipts and claim them on one spouse’s return. Pooling:

• avoids Canada Revenue Agency applying the low (14%) tax credit on the first‑$200 donation twice (once for each spouse), and
• enables potential access to the 33% federal donation credit if one spouse is in the top federal tax bracket

Amanda earns $280,000 and Bill earns $200,000. They donate $10,200 in 2026.

• The first $200 yields $28 regardless of who claims it
• The remaining $10,000 earns a:
  • 29% ($2,900) tax credit if Bill claims it, or
  • 33% ($3,300) tax credit if Amanda claims it

In this example, claiming on Amanda’s return generates $400 more in federal credits.

The takeaway is that when one spouse is in (or partially in) the top tax bracket, pooling and claiming credit on that return often produces better results.

 How carrying forward donations to “smooth” tax credits works:

Eligible charitable donations may be carried forward and claimed in any of the next five years. Carryforwards are especially valuable when donors:

• make a large, one‑time gift,
• experience a low‑income year, or
• donate highly appreciated assets

Here is an example of bunching to better align donations with a high-income year. A family typically donates $30,000 annually. In a year when the family is anticipating a higher income they contribute three years’ worth—$90,000. This approach allows them to maximize the value of the donation tax credit in a peak income year, with any excess available for carryforward if needed.

Bunching donations into a high-income year maximizes the value of the tax credit by applying it when marginal tax rates are highest, slightly increasing total savings and improving timing of the benefit.

How gifting from your RRIF works

In cases where an individual has a very substantial RRIF or a RRIF holding all their retirement assets, it is possible to withdraw charitable donation funds. This will create additional income taxes to be paid.  However, the charitable donation tax credit, in most cases, offsets the additional taxes or limits the annual tax increase.

4. Charitable giving through a corporation

For business owners, donating through a private corporation can be a tax‑efficient way to give while supporting broader tax planning. Done properly, it can reduce corporate taxes, help avoid unnecessary personal tax, and in some cases create tax‑free funds for the shareholder.

How it works

When a corporation donates to a registered charity, it claims a charitable donation deduction (not a personal tax credit). This deduction reduces the corporation’s taxable income and corporate tax payable.

Limits and carryforward: The deduction that can be used in a year is limited to 75% of net income, and unused eligible donations can be carried forward up to five years (with certain special exceptions for specific gift types).

The advantage of donating investments (not just cash)

The greatest benefit arises when donating publicly traded securities with accrued gains instead of cash.

In this case:

• The capital gain is not taxed
• The corporation receives a full deduction based on the fair market value
• The non-taxable portion of the gain is added to the Capital Dividend Account (CDA)

The CDA allows shareholders to receive tax-free dividends. As a result, donating appreciated securities can reduce corporate tax while creating an opportunity to extract funds from the company with no personal tax.

Corporate vs. personal giving: why results may differ

Canadian rules support giving in both settings, but they are not designed to guarantee identical outcomes. Individuals generally claim a non‑refundable donation tax credit, while corporations generally claim a deduction.

In practice, the result often hinges on where the money sits. If funds are inside the corporation, donating personally may require paying a dividend or salary first—potentially triggering personal tax before the donation credit is applied—so simple “rate vs. rate” comparisons can be misleading.

When corporate giving is often better

Corporate donating is commonly more attractive when:

• Funds are already in the company and withdrawing them personally would create additional tax friction.
• The corporation can donate appreciated publicly traded securities, potentially getting zero inclusion on the gain and building CDA for future tax‑free capital dividends.
• The corporation has meaningful taxable income where the deduction is immediately valuable.

When personal giving is often better

Personal donating may be preferable when:

• The individual has a high‑income year and can fully use donation credits against personal taxes payable (credits are non‑refundable)
• The goal is to offset tax from a specific personal event (e.g., a bonus or taxable gain year), where personal credits are most directly helpful.
• The donation is funded from personal cash, so no corporate withdrawal is required.

Blended approach + timing

In many plans, a blended strategy works best—personal donations in high personal‑income years, and corporate donations when corporate dollars (or appreciated securities) are available.
Coordinating the timing of donations and (where relevant) dividends is often key to maximizing overall efficiency.

Key takeaway

Corporate charitable giving can be one of the most effective tools for business owners—especially when donating appreciated publicly traded securities. The best choice depends on where the funds are held, timing, and whether the donation can be made in‑kind from corporate investments.