Check with your tax advisor to make sure your charitable donation meets the requirements for your maximum tax deduction.
Canadians seem to be a very generous people and are more than willing to support charities or give to non-profit organizations that promote ideas in which the donors believe. A Statistics Canada study reported that in 2010, approximately 24 million or 84% of Canadians 15 years of age and older donated a total of $10.6 billion.
The Canada Revenue Agency (CRA) facilitates this desire to help by providing a tax deduction. For the individual to receive the tax deduction, the donee (i.e., a charity or other qualified recipient of donations) must be registered with the CRA. Donees are not required to issue a receipt for a donation but the taxpayer cannot receive the deduction without supplying one to the CRA when remitting their tax return. Qualified donees include:
- registered charities and national arts services organizations (For a list of registered charities see cra-arc.gc.ca/chrts-gvng/lstngs/menu-eng.html)
- registered amateur athletic associations
- registered Canadian corporations providing low-cost housing for the aged
- registered government entities including the government of Canada, provinces/territories, and municipal and public bodies performing the function of government in Canada
- registered universities outside Canada that normally take Canadian students
- United Nations and its agencies
- Gifts to U.S.-registered charities to the extent of 75% of U.S. net income
Qualifying as a Registered Charity
To qualify as a registered charity, the organization must be registered in Canada but can carry out its activities anywhere in the world. Its structure is normally that of a charitable organization, but it can also be a public or private foundation.
To meet CRA requirements, the purpose of the charitable organization must be for:
- relief of poverty
- advancement of education
- advancement of religion
- other purposes that benefit the community in a way the courts have identified as charitable
Donations can be made in kind as well as cash.
Gifts in Kind
Gifts other than cash can also be made to registered charities. The valuation of these amounts can be complicated so discuss your plan with your tax advisor before you act.
The following are examples of donations in kind:
- Capital gains realized on gifts of certain capital property may be subject to capital gains tax. Check with your tax advisor whether an inclusion rate of “zero” can be assigned.
- You may not be able to claim a gift of an option to acquire property until the donee either exercises or sells the option.
- Gifts of securities acquired under a security option plan provided by your employer may be eligible for additional deductions, provided certain criteria have been met.
- Donations of ecologically sensitive land may provide an inclusion rate of “zero” for only certain institutions if certain conditions are met.
- Gifts of certified cultural property.
What Potential Donors Should Look for
The CRA requires that the receipt issued by the donee contain the following information:
- a statement that it is an official receipt for income tax purposes
- the name and address of the charity as on file with the CRA
- the charity’s or registered Canadian amateur athletic association’s registration number (not required for other qualified donees)
- the serial number of the receipt
- the place or locality where the receipt was issued
- the day or year the donation was received
- the day on which the receipt was issued if it differs from the day of donation
- the full name, including middle initial, and address of the donor
- the amount of the gift
- the value and description of any advantage received by the donor
- the eligible amount of the gift
- the signature of an individual authorized by the charity to acknowledge donations
- the name and website address of the CRA
If gifts in kind are donated, additional information must be provided:
- the date the donation was received (if not already indicated)
- a brief description of the property transferred to the charity
- the name and address of the appraiser (if property was appraised)
- the deemed fair market value of the property in place of the amount of gift
Taxpayers should not confuse a registered charity with a non-profit organization.
Non-profit organizations are not registered to issue donation receipts.
These organizations are managed and operated to provide benefit to specific groups but cannot earn profit. Non-profit organizations are usually set up as clubs for activities such as golf or curling, as leagues for sports such as hockey or baseball or as associations for festivals or seasonal celebrations. Non-profit organizations do not pay income tax but are required to file income tax returns. If the organization is active in only one province, the short version of the T2 annual form is filed; in more than one province, the regular T2 return will have to be completed. Quebec and Alberta require separate provincial returns. The non-profit organization must complete form T1044 if it meets any one of the following conditions:
- is entitled to receive taxable dividends, interest, rentals, or royalties of more than $10,000 in a fiscal year
- the total assets were more than $200,000 at the preceding year end
- an NPO return was filed in the previous year
If an organization’s main purpose is to provide dining, recreational, or sporting facilities, then the property of the organization is deemed to be held by a trust and a T3 Trust Income Tax and Information Return must be filed. The deemed trust will be taxable on the income earned (including some capital gains) on any property held.
Check Then Cheque
Because the CRA now accepts so many different charitable causes and so many different methods of contributing, the taxpayer needs to be careful to meet the reporting requirements to ensure the maximum tax benefit. For complicated gifting, seek assistance from your CPA.
The preceding article is reprinted from the October 2015 newsletter Business Matters with the permission of the Chartered Professional Accountants of Canada. Business Matters is a bi-monthly newsletter, the full version of which can be obtained on request.
This post deals with a number of complex issues in a concise manner; it is recommended that accounting, legal or other appropriate professional advice should be sought before acting upon any of the information contained therein.
Although every reasonable effort has been made to ensure the accuracy of the information contained in this letter, no individual or organization involved in either the preparation or distribution of this letter accepts any contractual, tortious, or any other form of liability for its contents or for any consequences arising from its use.