‘Tis the season to be giving. And why not? When we make a donation to a registered charity, we not only get the satisfaction of helping a good cause now, but a reward later in the form of a tax credit on our income tax.
But to protect yourself from fraud and to make sure that you get all the tax credits you’re entitled to, there are several things you need to know before you give.
1) Make sure you’re giving to a real, registered charity.
First of all, there are many unscrupulous crooks out there trying to prey on people’s generosity. The Canadian Anti-Fraud Centre warns that this is the peak time of year for fake charity scams. Such bogus charities often use names that are very similar to those of legitimate respected charities. Here are the Canada Revenue Agency’s (CRA’s) tips to avoid fraud.
Second, only Canadian registered charities or other qualified donees may issue official donation receipts that qualify for charitable tax credits – and no receipt means no tax credit.
So do your homework first and make sure the organization you want to give to is legitimate and registered. Go to the Canada Revenue Agency’s Charities Listings to confirm that a charity is registered under the Income Tax Act.
2) You can give to qualified donees as well as charities.
Qualified donees are organizations that, like registered charities, are empowered under the Income Tax Act to issue official donation receipts. They include registered Canadian amateur athletic associations, registered national arts services organizations, and listed Canadian Municipalities. View the complete list.
3) Be aware that although qualified donees can issue official donation receipts, they aren’t required to do so.
So if being able to claim the donation is important to you, make sure you ask about getting an official receipt that you can use for income tax purposes at the time you make your donation.
4) Cash isn’t the only thing you can give and get a tax credit for.
You can’t get charitable tax credits for giving your time or volunteering your skills. But you can gift the charity or qualified donee with personal property, shares, stocks or land.
Note that while there is no capital gains tax on the eligible amount of publicly traded securities donated to registered Canadian charities, that isn’t the case with property where any capital gain you have made on the property since you acquired it may be subject to tax.
If you’re interested in donating property, see the CRA’s Pamphlet P113, Gifts and Income Tax.
If you’re interested in donating securities, see the CRA’s Capital gains realized on gifts of certain capital property.
5) Donation schemes are a bad idea.
Donation schemes promise that you will get tax refunds greater than the amount of money or gifts you give to a charity through funneling your donation(s) through a tax shelter arrangement. Don’t be drawn in!
The CRA warns that they audit all gifting tax shelter schemes and have not found any that comply with Canadian law. They also warn that the CRA will put on hold the assessment of returns for individuals where a taxpayer is claiming a credit by participating in a gifting tax shelter scheme, and that assessments and refunds will not proceed until the completion of the audit of the tax shelter, which may take up to two years. And besides having all your donations disallowed as tax credits, you can also be charged penalties and high interest on your now unpaid tax that you didn’t expect to be paying.
But Do Give!
Don’t let any of this information put you off – there are so many worthy charities that need your help to do what they do and the glow of giving is not to be missed. You just have to be a little careful if you want that warm glow to return in April come tax time.