When you donate to charities you help make a positive impact on the lives of many Canadians, people around the world and on your life as well. Charities depend on our donation dollars to help Canadians and people around the world. Yet, before you go out and support an organization, it is important carefully research the charity. Here are the top ten questions you could ask yourself prior to donating to a charity.
1.Who can I donate to?
Although there are plenty of important causes in Canada, only registered charities can provide you with a donation receipt and thus help you reduce your taxes. The key word here is registered. Registered charities differ from not-for-profit organizations such as clubs and sporting leagues. Registered charities function under specific rules that are set out by the Canada Revenue Agency (CRA). Some of the stipulations that charities must follow include: ensuring that the money that they raise goes to charitable activities, keeping proper books and records, and sharing their financial and activity information annually with all Canadians through the CRA. There are other rules that charities must adhere to which you can read more about on the CRA website. In exchange for adhering to these stipulations, charities earn the right to a charitable registration number. This number is important to you, the donor because it makes you qualify for a tax credit.
2. How can I find out if a charity is registered?
You could ask the charity for its registration number and verify its status on the List of Charities. You could also call the Charities Directorate at 1-800-267-2384.
3. What can I donate?
You could donate cash, land or listed securities such as stocks to a registered charity or other qualified donees. Note that although gifts of service are valuable to charities, they don’t qualify for a tax receipt. These include donated time, skills and effort.
A good example of a gift of service is the following scenario. Let’s pretend that you are a software company and you offer to build a website for XYZ charity. After the website is completed, your company suggests that instead of invoicing the charity $16,000, the charitable organization issue you with a tax receipt of $16,000. Is the charity able to issue you a tax receipt? No, the charity is not able to issue you a tax credit because the website that you built for the charity is considered a gift of service and its an example of how you donated your time, skill and effort.
Lets now look at another scenario. You are still the same software company, yet in this case, you created a pre-designed software product, specifically a website template designed for charities (not only for XYZ charity but many charities). Your software company sells this product for $4000 and as long as you have documents to verify that this the fair market value of the product, then XYZ charity could issue you a donation receipt for $4000.
So the difference between scenario 1 and scenario 2 is that the former scenario is an illustration of a gift of service whereas the latter scenario is an example of a gift of property. In scenario 1, your software firm created a website specifically for XYZ charity, which could not be sold in the free and open market and therefore doesn’t qualify for a tax credit. On the contrary, in scenario 2, your software company designed an off the shelf software that could be sold in the free and open market, and thus qualifies for a tax credit.
4. How much do I need to donate to receive a tax credit?
You could donate any amount to benefit from a tax credit. Just ensure that you have an official donation receipt. Note that a charity is not required to give a receipt when it receives a donation. The CRA advises charities to tell potential donors when they will or will not be issued a receipt.
5. How do I claim a donation?
When you file your income tax and benefit return, there is an area on your return that is specifically for claiming your donations. Remember to fill out the donations section on your provincial and territorial tax and credit form. Additionally, ensure that you store all supporting documents such as official donation receipts, canceled cheques and pledge forms and stubs in the event that the CRA decides to review your return.
6. Do I need to claim my donation receipts on an annual basis?
You can claim your receipts up to 5 years after you’ve made the donation, You can also combine your receipts with those of your spouse or common-law partner. In fact, donations of over $200 are equivalent to a deduction at the top tax bracket regardless of whether or not the donor is in the top tax bracket.
7. Is it fine if a registered charity gives me something in return for my donation, such as sporting or ballet tickets?
Yes, this totally fine and it is called an advantage. When a charitable organization gives you something as a token of their appreciation in exchange for your donation, the charity is required to subtract the value of the advantage from the amount of your donation to calculate the eligible amount to put on your donation receipt.
For example, you donated $1,500 to a registered charity called ABC Ballet Company. In order to show their appreciation, the company gives you three tickets to a performance that are valued at $150. You are therefore considered to have been given an advantage of $150. The eligible amount of the gift is $1350 ($1,500 − $150).
8. What if the organization that I donated to is no longer registered. Can I still use my donation receipts to claim a tax credit?
Yes, if the charitable organization was registered when you first made the donation, then you can still use the receipt to claim a tax credit.
9. What are some tips that could help me ensure that I donate wisely?
a. Prior to donating check out the List of charities to verify that the organization is qualified to give you an official donation receipt.
b. Do not donate to an organization that pressures you to give immediately or if you aware of any signs of fraud.
c. Ensure that your online donations are secure.
d. Write cheques to the charity and not the individual.
e. Beware of donation schemes that promise a tax receipt for more than you donated.
10. What are some warning signs that a charitable organization might be engaged in fraud?
a. The charity calls to thank you for a donation that you have not made.
b. Organizations that use names similar to popular charitable organizations.
c. Canvassers who do not disclose details about the organization they serve.
d. Requests from the organization to send cash or money orders instead of cheques or credit card. Cash could not be traced and cannot be canceled.
e. Overly friendly canvassers that ask you personal questions.
f. Organizations that use free email addresses like Gmail or Hotmail to enable people that are part of the organization to conceal their identity.
g. Strange call display numbers such as 123-456-789 or 888-888-889 which might mean that the caller is trying to hide their phone number.
If you suspect an organization is engaged in fraud, report the suspected fraud to the Canadian Anti-Fraud Centre at 1-888-495-8501.
If you require additional consultation or want to learn more about our professional accounting services, please do not hesitate to contact S & P Accounting Services.
Polina Presman, CPA, CA
Shani Marzin, CPA, CA
S&P Accounting Services LLP
2727 Steeles Ave. W. Suite 300
North York, ON, M3J 3G9
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