Giving to charities, whether in time or money, is an important part of life in Canada. As we battle COVID and the economic pressures it’s putting on all Canadians, charities are feeling the pinch too. Here’s what you need to know about donating.
Personal – Only registered charitable organizations can issue income tax receipts. If there is no CRA number on the receipt, you cannot claim it. Due to the financial burden to issue tax receipts, some charities may choose not to issue a receipt for donations under a specific amount as determined by them. In fact, charities are not required under the Income Tax Act to issue tax receipts at all. Who knew? Check with the charity first before making that $10 or $20 donation if you’re expecting a receipt.
In the current tax year you can claim up to 75% of your net income in eligible charitable tax receipts not previously claimed and you can back 5 years! The tax credit on the first $200 in cumulative donations is 15% federal and 5% in Ontario. Each province is different so check your tax credit rate. Over $200, the tax credit is 29% federal and 11% in Ontario.
In order to optimize your tax credit, save up your donation receipts and claim them all at once. You can also claim your spouse’s donations and vice versa. Please note that this is a non-refundable tax credit. What that means is it can only be used to reduce taxes owed; if you don’t owe any tax, you don’t get a refund.
Ways to Give – Some corporations offer employee payroll deductions through the United Way or Canada On-line Giving. From there you can select which charity your donation should be directed to. Other ways to donate include cash, cheque, or credit card. Monthly donations help with your cash flow and the charities cash flow and budgeting. Check out Canada Helps for making donations to your favourite charities easy. Please note that there may be an administration fee deducted from your donation.
If a monetary donation is not in cards right now, how about a donation of time? Charity Village is a great source for volunteer positions.
Giving of Services – if you own a small business you may want give your services to the charity free of charge. According to the CRA, services are not considered a gift nor a non-cash gift for receipting purposes. To make sure you get that tax receipt invoice the charity as you would any other business. The charity will pay your invoice, then you will donate the amount back to the charity. A donation tax receipt can then be issued by the charity.
Non-cash Gifts – You may choose to donate goods instead of money. If the fair market value of the gift can be determined the charity may issue a taxable receipt. For example, if you have purchased new items the store receipt will be evidence of the fair market value. If the value of the gift is more than $1,000 with no receipt it is recommended that a third party appraise the value. Note that the onus is on the charity to determine fair market value, not you.
Charitable Events – Charitable organizations do not have to issue income tax receipts for tickets you buy for their charitable events because you are receiving something in return for the ticket, called an advantage. This is usually in the form of a meal, banquet/party, or entertainment. If the advantage is 80% or less of the ticket cost a tax receipt may be issued. This is known as split receipting. For example, you buy a $150 ticket for a golf tournament that includes breakfast. The cost of a round of golf is $75 and breakfast costs $10. The total cost of the advantage, $85, is less than 80% of the cost of the ticket, $120 ($150 x 80%). The charity may issue a tax receipt for $65 ($150 – $85). On the other hand, if the round of golf is $100 and it includes dinner valued at $30 the total cost of the advantage is $130. In this case no receipt would be issued because the advantage is greater than 80% of the ticket price. Please check with the charity first if you are expecting an income tax receipt.
I hope this has given you an understanding of charity giving and has inspired you to give. Search what charities are in your local area and find something that hits home or strikes a chord with you. Be it money or time, please take the time to give.
Pam Little is a Chartered Professional Accountant with over 25 years of experience. She helps individuals and small businesses with all their accounting needs. The information in this article is of a general nature only and your tax situation may differ from this. If you have specific questions please book a free consultation with Pam Little, CPA, at firstname.lastname@example.org or call 416-268-1605.