Why should you budget for charitable giving?

Donating to charity can be a win-win. It can have a positive impact on community organizations and causes that are important to you. And it can help you feel good about how you’re spending your money. Charitable giving can also help your household bottom line by reducing the amount of tax you pay, since charitable donations can be claimed as a tax creditTax credit The amount you can deduct from your income when you file your taxes. This lowers…+ read full definition.

When you include charitable giving in your budget, you’re more likely to follow through on your plans to donate.

There are an estimated 170,000+ non-profits and charitable organizations in Canada (about 86,000 of these are registered charities). Canada Helps has an online directory where you can search Canadian charities by sector and learn about the work they do.

Whenever your money is involved, always be careful. Remember to always keep an eye out for  fraud — even when you’re trying to make the world a better place.

Find out more about donating to charities in Canada.

Charities and non-profits aren’t always one and the same. A non-profit may be, but isn’t necessarily, also a registered charity. Only registered charities can issue official receipts for income taxIncome tax A charge you pay based on your total income from all sources. The Canadian government…+ read full definition purposes. Check the CRA charities listings to find out if a charity is registered.

How do you know how much to give?

The amount you donate to charity depends on your financial circumstances. It’s a good idea to budget for whatever amount you decide to give. That way you can be sure you are only donating what you can afford. There are a few ways you can decide how much to donate:

1. Use a percentage of your income – Many people donate between 1-3% of their take-home pay to charity. Using a specific percentage allows you to calculate how much you would be giving from your budget. It can also help you make sure that your living costs are covered before donating. This approach helps ensure your giving strategy is financially sustainable. You might start with 1% of your income, and then add to the amount over time as your income grows.

2. Find spending trade-offs to divert to charity – Consider what your regular spending habits are as part of your wants, rather than your needs. Then think about which of those wants you could eliminate to make a donation instead. If you have recurring expenses, like coffees or take out, perhaps you could replace some of those costs with a donation instead. For example, a $5 weekly snack purchase could add up to a $25 monthly donation instead. This method helps you evaluate what you can afford and looks for budget trade-offs to support your charitable giving.

3. Use the 50/30/20 rule – This budgeting approach splits your take-home pay in three ways:

• 50% for needs (housing, utilities and food)
• 30% for wants (going out for dinner, seeing a concert, or gifts)
• 20% for savings and paying debts

Charitable giving would come from the 30% set aside for wants. These percentages may also be different depending on your personal situation. You might need more than 50% of your take-home pay for necessary expenses.  

You can review your strategy once or twice a year to ensure that you’re giving an amount that works for you, and you can adjust as needed.

What are some ways to give?

There are many ways to give to charity. How you give may be determined by when you want to give. There are a few common ways of giving:

• Automated giving, such as monthly donations – Most charities offer you the choice between giving a one-time donation or setting a recurring monthly donation. A recurring monthly donation can be a good choice for a few reasons:
  • It’s easier for your budget to plan a specific amount each month, on a regular schedule.
  • It can bring you peace of mind knowing your donations are taken care of each month, so you won’t have to set aside time each month to manage it.
  • It’s beneficial for charities to receive predictable monthly donations because it can help with their own budgeting.

• One-time donation – Making a one-time donation at any time of year benefits charities, particularly when the need is urgent. One-time donations could be the right choice for you when:
  • You can take advantage of donation incentives like Giving Tuesday, charity fun-runs, or employer fundraising drives.
  • You may have extra money available to donate, such as an end-of-year bonus at work, or a refund at tax time.
  • You want to respond to urgent needs in your community, or around the world, which are harder to plan for.

• Employer matching programs – Some employers will match the donations of their employees as part of a benefits package. This donation approach can be helpful if:
  • You want your donation to go further by being doubled by your employer.
  • You want to be able to plan your donation amounts in advance.
  • You want the charities being supported to receive larger donations.

What are the tax benefits of charitable giving?

When you donate money to a registered charity, you can claim your donation as a tax deductionTax deduction A cost that you can deduct from your income when you file your taxes. This…+ read full definition. By doing so, you reduce your taxable incomeTaxable income The amount of income you have to pay tax on, after tax credits and deductions.+ read full definition. You can do this by claiming a non-refundable tax credit for donations and gifts, when you report your donations on your federal and provincial tax returns.

You must have an official tax receipt for the donation to claim it on your tax return. In most cases, the amount you can claim is the amount shown on your charitable donation receipt. The maximum donation amount you can claim is 75% of your net income.

You don’t have to claim your donations in the year you made them. You can carry them forward to the next tax year or any of the next five years. However, you can only claim a donation once.

The deduction you receive for your charitable donation depends on how much you donated, and which province you live in. Each province has their own donation tax credit rate. As of 2023, you’ll receive:

• 15% federal tax credit for the first $200 of charitable donations.
• 29% federal tax credit for amounts over $200.
• Provincial tax credit.

If you are married, you could consider combining receipts with your spouse. Having only one person claim the entire charitable donations amount will maximize the tax credit.

Remember that a non-refundable tax creditNon-refundable tax credit Non-refundable tax credits can only be used against tax that you would otherwise owe.+ read full definition doesn’t add to your refund at tax time, but it does reduce the amount of tax you owe. This means claiming your charitable donations can still make a difference on your tax return. Learn more about how income tax credits and deductions work.

If you want to be strategic about your giving and optimize your charitable tax credits, consider speaking with a tax specialist or financial plannerFinancial planner An individual who looks at your financial situation and builds a complete plan to help…+ read full definition. A qualified advisor can consult on how to maximize the impact of your giving, based on your financial situation. They can also help you define your goals, calculate the money you’ll be able to save on your tax bill, and develop a long-term plan that fits both your financial goals and philanthropic interests.

When you donate to a registered charity you can be issued a receipt for the donation. Keep your receipts in a safe place – perhaps a file box for paper receipts or a digital folder for e-receipts. If you keep your receipts in the same place as your notice of assessment and other tax documents, you’ll be prepared at tax time.