Charitable donation tax credit — how it works and how to maximize it
Charitable gifts
Section 118.1 provides a two-tier non-refundable tax credit for charitable donations: 15% on the first $200, and 29% (33% for high earners) on amounts above $200, in a given year.
Plain-language explanation
Section 118.1 converts charitable donations into federal tax credits. The credit structure is more generous than a simple deduction because the 29/33% rate applies to the portion above $200 regardless of your marginal rate.
The federal credit rates (2026): - First $200 of donations: 15% federal credit - Above $200: 29% federal credit for most taxpayers - Above $200 for income over $246,752: 33% federal credit (equals the top federal marginal rate)
Combined with provincial credits (typically 5–17% depending on province), the total credit for donations over $200 can exceed 40–50% of the donated amount.
Eligible "gifts": A gift requires both a transfer of property and the absence of benefit to the donor. If you receive a significant benefit (a dinner, a gift package), only the "split receipt" portion (cash paid minus FMV of benefit) qualifies.
Donation deadline: Charitable gifts can be claimed in the year made or any of the following 5 years — you can choose the best year for your tax situation.
Gifts of capital property: Donating appreciated shares (or other capital property) directly to a registered charity is the most tax-efficient strategy: the capital gain inclusion rate is 0% on donated securities (since 2006), meaning you get the donation credit on the FMV but pay no capital gains tax on the appreciation.
Example
Ryan donates $5,000 to a hospital foundation. Federal credit: 15% × $200 = $30 + 29% × $4,800 = $1,392. Total federal credit: $1,422 (28.4% of $5,000). Combined with Ontario credit (~5.05%), total tax saved: about $1,676.
Amendment history
Significant changes to this provision. Older versions help you understand rules that applied in prior tax years.
Capital gains inclusion rate on gifts of publicly-listed securities to registered charities reduced from 50% to 0%. Donors can now donate appreciated shares and pay no capital gains tax, while receiving the full fair-market-value donation receipt.
Before
Capital gains inclusion rate on donated securities: 50% (same as any other disposition)
After
0% capital gains inclusion on gifts of publicly-listed securities, mutual funds, and certain other capital property to registered charities
First-time donor "super credit" expired. The FDSC provided an additional 25% federal credit for first-time donors on the first $1,000 in donations — available for 2013–2017 only.
Before
First-time donor super credit available (extra 25% on up to $1,000)
After
FDSC expired after 2017; standard two-tier credit applies
Common questions
Should I donate appreciated stocks instead of cash? +
Yes, in almost every case. Donating publicly-listed securities directly to a charity: (1) triggers 0% capital gains inclusion (no tax on the appreciation), (2) gives you a donation receipt at FMV, and (3) generates the same donation credit as a cash gift of the same amount. You save both the capital gains tax AND get the donation credit.
Can I carry forward unused donation credits? +
Yes, for 5 years. You don't have to use the credit in the year of the donation. Many taxpayers cluster donations in high-income years to get the credit at the highest rate.
What is a "split receipt"? +
When you receive a benefit (tickets to a gala dinner worth $100) in exchange for your $500 donation, the receipt should be for $400 (the $500 donation minus the $100 FMV of the benefit). Only the charitable portion generates the credit.
Key terms
Related sections
Source: Income Tax Act, RSC 1985, c. 1 (5th Supp.), section 118.1. — Read the official text on Justice Canada
These summaries are for educational purposes only and do not constitute legal or tax advice. Speak with a CPA for advice on your specific situation.