Tax time is coming. Can I claim charitable tax credits for my gifts?
Canadians love to reduce their taxes by giving to charity. Canadian charities receipted a whopping $15.7 billion dollars in donations in the last year that such figures were published. But not every contribution to charity however will qualify for a tax deduction. Charitable gifts must meet a legal test to qualify for a tax deduction.
The standard legal definition of a gift is a voluntary transfer of property without any consideration. That’s pretty simple. As with most things, the devil is in the details. Let’s briefly summarize a few misconceptions of what a gift is NOT (for tax purposes).
1) Services - Canada Revenue Agency (CRA) will not recognize the value of a donor’s time or services to charity. CRA only accepts property transfers.
2) Directed Gifts – You may give to a charity but be careful if you tell that charity what to do with it. CRA won’t allow for private benefits. The US Supreme Court poetically said it like this: “Charity begins where the certainty in beneficiaries ends, for it is the uncertainty of the objects and not the mode of relieving them which forms the essential element of charity.” Bottom line: when a donor designates a beneficiary by name or limits the benefits to a small group of people, the gift will not pass CRA’s public benefit criterion.
3) Pledges – A pledge is a promise, but it is not a gift. Saying you’ll do it and actually doing it are two different things. CRA wants you to put your money where your mouth is.
There is more to say. I’ll have more tips for you in the second part of this discussion in a Legal Matters feature to follow.