Tax Matters: Give Wisely

By Michael Crawford

Canadians are a generous people. Currently there are over 85,000 registered charities in Canada that cater to a variety of goals such as the relief of poverty; advancement of education or religion or “other purposes beneficial beneficial to the community...”. This issue I will examine rules about charities and the Income Tax Act. I will also look at some of the warning signs when a charity's intentions are less than honourable.

Registered Charities

If you are considering giving to a charity you should go to the List of Charities on the Canada Revenue website and make sure the charity of your choice is registered. If it is not registered you may want to reconsider your donation. A charity that is not registered is not permitted to issue charitable donation receipts for your tax return. Some charities do exist that do good work but are not registered with the Canada Revenue Agency (CRA). If you are familiar with such a charity, and wish to support their work you may, of course, give them your money but you will not be able to receive a credit on your tax return.

It's a Good Feeling

A donation (also called a “gift” in tax terms) “...is a voluntary transfer of property without valuable consideration to the donor.” In other words, you are giving something up and expect nothing in return (except feeling good about yourself, which is okay because good feelings are not taxable). This gift usually takes the form of cash, but it doesn't have to. Donations of securities, property, land, art, cultural property and more are all acceptable forms of donation.

What's In It For Me?

Receipts. If you give $20 cash, you get a receipt for $20. If you give securities, their value will be determined by their Fair Market Value (FMV) immediately before you donated them. As a practical matter, the value of securities would be determined by referring to the closing number on the listing exchange (e.g. TSX) on the day the securities are donated. Other forms of donation worth more than $1000 have to be appraised by an appraiser familiar with the class of object to be valued. Gifts of less than $1000 do not need to be appraised but the donor should keep all documents relating to the value of the gift given. Also if you are donating capital property you must be aware that your donation may trigger a capital gain or loss that you must also take into consideration in your tax planning.

How Much is Too Much

How much should you give? Well that is between you and your budget, however, keep in mind, generally, you may not deduct more than 75% of your net income (Line 236 on your tax return). I have never seen anyone donate 75% of their net income to charity other than in the year they died and the rules for charity and death are a whole other article.

Things To Watch Out For:

1. Buy Low Sell High is a great mantra [saying] if you are investing in the stock market but it is a great big red flag when it comes to charity. The scam works something like this: you agree to purchase something, usually multiple copies of software or several pieces of art, at a deep discount because you are buying in volume. You immediately donate these goods back to the charity for its retail value which is the amount of your receipt. For example; WeBScammers offers you the opportunity to buy 100 copies of Junkware 2.0 software for $2 a copy; so you write a cheque for $200. Junkware 2.0 retails for $20 a copy in the stores, so WeBScammers gives you a receipt for $2,000. This will save you $552 in federal taxes and another $100 to $300 in provincial taxes depending on your province's tax rates. Sounds like a great deal....but it's illegal. Don't fall for it!

2. Someone calls you up to thank you for your pledge and request a cheque. The problem is that you don't remember making a pledge. Are you becoming senile [forgetful]? No. This is simply another tactic to separate you from your money. Don't fall for it. If you don't remember making a pledge and have never heard of the charity just hang up the phone.

3. Don't recognize the number on your phone display? Reputable charities do not hide their identities. In fact honest charities do everything they can to promote themselves including allowing their phone number to show up on your call display. The Income Tax Act and other related legislation are large and complex laws that frustrate even the professionals at times. This article is intended to increase your awareness of issues that affect you and encourage you to look more closely at the ones that relate directly to your situation. You are encouraged to seek professional guidance specific to your unique situation.