The Statista website claims that annually around 5.6 billion Canadians give to charity. If 5.6 billion Canadians give to charity then how do they make sure charity or fundraising is within tax rules? To continue offering social services, improve community quality of life, and assist the most vulnerable, charities rely on this enormous generosity. A few incentives exist to encourage such giving, and one of them is the use of charity tax credits. Here is the information you should have about charitable giving in Canada in advance of tax season.
Contributing is rewarding, and it gets even better if you do it often. Canada offers large tax credits for charitable contributions that may equal up to 29% of the total amount given at the federal level. There are three stages to the Canadian tax credit for charitable contributions:
For the first $200 in donations, there is a 15% non-refundable federal tax credit.
Federal tax credits of 29% are available for donations above $200.
Credits from the state. In addition to paying less in federal taxes, you might receive a larger refund from your province. To readily see your savings at the federal and provincial levels, use our tax credit calculator.
Many other types of eligible donations can be deducted from your taxes, including gifts of real estate and crowdfunding campaigns. As a general rule, a donation is regarded as a “qualified gift” when no payment or other advantage was received in exchange.
1. Collaborate with NGOs
According to Toronto attorney Mark Blumberg, partner with Blumberg Segal LLP, as a third-party fundraiser organizer, you must first contact the charitable organization you wish to support in advance for permission to organize the event. Then, he continues, working closely with them to verify that the campaign and contribution regulations are followed. The CRA advises that a formal agreement with specific terms describing the crowdfunding arrangement should also be taken into consideration. Moreover, it is also suggested that another individual is doing the majority of the labour, and he claims that third-party fundraising may be excellent for charities. However, organizers should first speak with the NGO to better understand its fundraising procedures and the time and resources needed, so that everything is set up in advance. According to the CPA, to offer gift tax receipts, a charity needs to be registered with the CRA. President of Toronto-based Infomoney Solutions Inc., Stan Swartz Numerous Canadian non-profits are not recognized as charities. The safest way you can play is by always searching from the CRA website.
2. Calculate the overall benefit.
Any benefits that attendees get at the fundraising event—including food, drinks, green fees, cart rentals, golf balls, door prizes, and/or complementary gifts—must be taken into account when issuing donation receipts. This is referred to as an advantage and implies that the amount on a receipt given to participants will be the amount donated less the overall value of what they get. The retail value of door prizes is determined, added together, and then divided by the number of event tickets sold. Other benefits are determined by the CRA’s valuation of what each participant received. Additionally, donors are not entitled to a receipt if the benefit they receive exceeds 80% of the donation’s value. It’s a pretty structured system, and a charity requires certain information to figure it all out.
3. Manage non-cash gift accordingly
A receipt for the item’s value can be given to the giver of donated property or non-cash presents, including those that are sold at an auction. Subject to the advantage rule, the winning bidder may also be given a receipt for an amount equal to the amount paid for the item less the value of the item. As previously stated, an auction is also subject to the advantage rule. Therefore, a successful bidder will only be given a contribution receipt for an auctioned item if their winning offer exceeds 80% of the item’s value, says the CPA. Michael Espinoza, senior manager of Grant Thornton LLP’s national tax office
In conclusion, Canadians give enormous amounts of charity and do fundraising. However, they are sometimes confused about how they need to stay within the tax rules when giving to charity. So this blog has covered the methods of how they can give to charity within tax rules. Always remember, if you are in trouble and have difficulty understanding the tax work, always consult with or hire a professional.