donation tax credit
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This article appears in the October 2023 issue of Investment Executive. Subscribe to the print edition, read the digital edition or read the articles online.

Alberta has hiked the provincial donation tax-credit rate on the first $200 of donations to 60%, a sixfold increase the provincial government hopes will encourage more Albertans to give to registered charities.

When Alberta’s new donation credit rate is combined with the 15% federal tax credit rate for small donations, Albertans will receive a 75% tax credit on the first $200 of eligible donations, up from a combined 25% tax credit last year, when Alberta’s rate was 10%.

“It’s a win, especially for people who are just donating $100 or $200 in a year,” said Darren Bastarache, director of tax and estate planning with IG Wealth Management in Edmonton.

The increase comes after Alberta’s legislature passed a private member’s bill in December with unanimous support. The government passed an amendment in the spring to make the new legislation effective retroactively to Jan. 1, 2023. The rate on donations above $200 remains 21%, six percentage points higher than the top income tax rate in the province.

Raising the rate to 60% makes Alberta’s by far the highest in the country below the $200 donation threshold, with most other provinces offering a tax-credit rate equal to the rate of their lowest income tax bracket. For example, Saskatchewan provides a 10.5% provincial tax credit for the first $200 of donations and 14.5% on donations above that threshold.

With the legislative change, Alberta is now the only province where the tax-credit rate for the first $200 of donations is higher than the rate on donations above that amount.

United Conservative MLA Dan Williams, the bill’s sponsor, told the legislative assembly that the higher tax credit would help registered charities build a wide base of smaller donations and encourage younger generations to become repeat donors.

In 2021, the most recent year for which Statistics Canada published data, Canadian tax filers reported giving more than $11.8 billion to charitable organizations, an 11.5% increase from the previous year. However, the number of tax filers claiming a tax credit for charitable donations decreased by 3.2% from the previous year to 5 million.

“This decrease might be related to the increased use of crowdsourcing platforms and other methods of funding that do not provide donation receipts for tax purposes,” Statistics Canada said in its report on 2021 donors.

Alberta’s higher tax credit rate is likely to motivate more clients to obtain and keep track of donation tax receipts, something clients don’t always do when making small donations, Bastarache said. The higher rate also may lead more clients to claim at least $200 of donations each year. Couples can allocate donations between them, maximizing access to the higher tax credit.

Donations that aren’t claimed in the year they’re made can be carried forward for up to five years.

“If you had a [one-time] donation of $1,000, and you [claimed] that over five years, you’ll save more tax for Alberta purposes than you would [claiming the entire amount in one year],” Bastarache said.

High-income Albertans who make larger donations also will benefit from the higher tax credit on the first $200 in donations.

If a client donates publicly traded shares that have risen in value, they will pay no tax on the capital gain, potentially boosting their tax savings on the first $200 of donations, Bastarache said.

The higher rate also gives financial advisors in Alberta an opening to discuss charitable giving — as well as legacy planning more broadly — with clients who don’t regularly make donations, said Larysa Troyanovska, senior wealth advisor with Servus Credit Union Ltd. in Calgary.

Clients have been “pleasantly surprised” to learn of the tax change, Troyanovska said: “It’s a bigger tax credit — you might as well take advantage of it.”

Canadians can claim a donation tax credit for donations to registered charities of up to 75% of the taxpayer’s income in a year. The federal donation tax credit is 15% on the first $200 of donations and 29% (33% to the extent income exceeds $235,675) on amounts above.