Charitable Donations Tax Tips with CA Ron Mulhern

Tuesday, December 21st, 2010

The Christmas spirit and the rush to get end of year tax receipts make December a popular month for donating to charities. We asked chartered accountant Ron Mulhern for some advice on the rules regarding donations.

Q. How can you make sure you are donating to a legitimate charity?

A. If you are uncertain of the legitimacy of a charity, you can check Canada Revenue Agency’s website which has a listing of all Registered Canadian Charities.  The website provides basic information about the charity, its finances and activities.

Q. What are the tax benefits of donating money?

A. An individual who donates to a Registered Charity is entitled to claim a tax credit equal to approximately 20% of the first $200 and 44% of annual donations in excess of $200 (the exact rates vary depending upon the province you are resident in).

The amount of the donation that can be claimed in a year is generally restricted to 75% of your annual income.  However, that limit is extended to 100% of your annual income in the year of death (and the year preceding death).  The limit is also extended to 100% of taxable capital gains realized on the donation of certain types of property.

A donation made by a corporation reduces the corporation’s taxable income. The tax saving realized will depend upon the type of corporation and the nature of its income.

Q. Do you need to donate to Canadian charities to receive a tax credit?

A. In addition to Canadian Charities, gifts to the following entities also qualify for a tax credit:

  • Registered Canadian Amateur Athletic Associations
  • Certain non-profit housing corporations resident in Canada
  • A Canadian municipality
  • The United Nations or an agency therefore
  • Certain prescribed Universities outside Canada
  • A Charitable Organization outside Canada to which her Majesty in Right of Canada has made a gift during the year or the prior year
  • Her Majesty in Right of Canada or a province
  • A portion of tuition fees paid to private schools that teach religious studies
  • The Canada US Income Tax Convention provides that donations to US charities can be claimed, up to a maximum of 75% of US source income reported by the taxpayer on their Canadian tax return.
  • You may also be entitled to claim donations to US Charities of up to 75% of your net world income if you commute from Canada to the US to your principal workplace or business and if that represents your main source of income for the year.

Q. Can one receive a tax receipt for donated goods or services?

A. A gift must involve a voluntary transfer of property.  Therefore, a gift of property “in kind” qualifies for a donation receipt up to the current fair market value of the property.

However, a gift of services is not considered property and, therefore does not qualify for an official donation receipt.

Special rules apply when artists donate their artwork.

When you donate property, you are considered to have disposed of the property which means that you may realize a capital gain.  Generally 50% of all capital gains must be included in your income.

However, an inclusion rate of zero applies when you donate the following types of property:

  • a share or debt of a public company listed on a designated stock exchange
  • A share of the capital stock of a mutual fund corporation
  • A unit of a mutual fund trust
  • An interest in a related segregated fund trust, and,
  • Ecologically sensitive land

Ron Mulhern

UHY LDMB Advisors Inc., Chartered Accountants
#306 1688-152nd Street, Surrey, BC   V4A 4N2
Phone: 604.538.1611 x 114  Fax: 604.538.1633

Contributor: Kelly Neufeld

Kelly Neufeld is a freelance writer who lives in Abbotsford with her husband and their two daughters. In addition to writing articles for the Fraser Valley Pulse, Kelly is a contributing writer & Marketing Coordinator for Impowerage Magazine. She enjoys spending time with her family, staying active and shopping.

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