Claiming Tax Credits for Anonymous Charitable Donations

People make charitable donations for a variety of personal reasons. In some instances, donors prefer to remain anonymous when funding their favourite charity. If an anonymous donor follows the correct procedure, he is still able to receive a credit when filing his income tax.

Charitable donations receive a favorable treatment in the Canadian tax system.

Credit amounts:

• The federal tax credit can reach up to 29 percent of the donation, with additional provincial credits that go up to 24 percent.
• First-time donors can also receive a 25 percent super credit.

However, to receive these generous credits, donors must be able to prove that they made a donation to a registered charity. For this purpose, a donation receipt is issued by the charity. The receipt shows the donor’s name, the amount of the donation, and the charity’s CRA registration number. The donor is to submit this receipt to the CRA.

In the case of an anonymous donation, the charity does not know the name of the donor, and therefore cannot put it on the receipt. To allow anonymous donors to still benefit from the tax credits, the CRA has adopted a policy that outlines the steps that should be followed in order to receive a valid receipt from the charity.

Anonymous donors need to set up an agency or trust agreement with a third party who will make the donation on their behalf. This person, called the agent, will essentially act as a go-between with the donor and the CRA.

It is not necessary for the agreement between the donor and the agent to be a formal one, but it should be sufficiently documented such that the donor can prove its existence to the CRA if he is ever audited. The exact procedure is as follows:

• Establishment by the donor of an agency or trust agreement to make the anonymous gift
• Appointment of an agent by the donor for the purpose of making a gift on behalf of the donor
• Agreement by the agent to hold the funds in trust for the donor
• Instructions by the to the agent to make a gift to a registered charity on the donor’s behalf
• Instructions by the agent to the registered charity to issue a receipt in the amount of the gift in the name of the agent with the mention “in trust”
• Delivery by the agent of the receipt to the donor for the purpose of establishing the details of the donation.

If these steps are correctly followed and the receipt bears the mention “in trust” along with the agent’s name, the CRA will accept that the donation has effectively been made by the donor. As a result, the donor will be able to claim the applicable credits on his income tax return.