Generally, there are two main advantages that arise from giving to registered charities. Well, the first one is that you're helping out some people who actually need help and you’re getting a tax break. If you’re in the Christmas spirit and would like to make some charity donations then it might be a "Taxvantage" for you to donate to a registered charity. The tax savings you get from the first $200 of donations on your federal income is 15% ($30 tax benefit) and if you decided to donate $100 more bringing the total donation to $300 the federal income tax credit jumps to 29% ($29 tax benefit). The obvious incentive by the government is to have you donate more than $200 a year.
To receive credit for the donation you made you must receive an official receipt from the registered charity. An exception to this is when donations have been made by your employer on your request which shows up on your T4 tax slip. It's always a great tax strategy to bump up on your donations during the end of the year like December is a perfect month to be charitable. You can make your charitable donations using your credit card and as long as the donation is processed by the end of the year the receipt will be dated for the current year. This is important because for T1 tax returns are based on a calendar basis i.e. Jan 1st to Dec 31st.
Take advantage of the special tax rules by donating other types of assets than cash. When you "gift" an asset in most cases you're considered to have sold the asset for a price equal to the market value at the time. That is what tax geeks like us refer to as "deemed disposition" and it would trigger a capital gain on the asset which directly translates into a tax liability despite there was no cash that traded hands. However, there will likely be no tax to pay because you'll receive an official tax receipt to claim the charitable donation equal to the market value. This can be beneficial where you would like to help out the charity with musical equipment which generally holds their respective market values.
A common tax scam is charity scam. It's sad that some people misuse the tax system where charities are targeted as tax shelters. The reasoning for the rise of tax shelters is because you can legally donate 75% of your gross income to a charity. A number of organizations give out receipts for your donation that are not really "official" receipts. The amounts you give to these charities can't be claimed. The question to ask isn't if you will receive a receipt but if you will receive an official receipt being the charity's registration number is noted on the receipt. You can do your due diligence by checking the following link to see if the charity is registered on the CRA website --> http://www.cra-arc.gc.ca/charities/
The CRA requires the following to be noted on an official receipt:
Your name and address.
The charity’s business number (BN), which is also known as its charitable registration number. This is a 9-digit number followed by “RR.”
The amount of the cash donated or the market value of a noncash donation.
The date of the donation. If the donation was in cash, then simply the year needs to be noted.
The statement “official receipt for income tax purposes.”
A notation of the CRA’s name and Web site (www.cra.gc.ca/charities).
A unique serial number.
P.s. Don't fall for those charity scams offering you $10,000 donation official receipts when you pay these scam artists $1,000. All it takes for the CRA is to find one person who fell for this and everyone who took part of the scam will be hit with penalties and interest at the bare minimum. It's not worth it! Keep your tax returns #clean.
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- Written by: Jag Bath