According to the Statista website, approximately 5.6 billion Canadians donate to charity each year. Charitable Fundraising depend on this generosity to provide social services, improve community quality of life, and assist the most vulnerable. To encourage such giving, there are several incentives, including charity tax credits. As tax season approaches, it’s essential to understand the guidelines for charitable giving in Canada to ensure that charity or fundraising efforts comply with tax rules. Here’s what you need to know.
How much can Canadian taxes be reduced through Charitable Fundraising contributions?
Giving to charity is not only rewarding in itself but can also have tax benefits in Canada. The country offers generous tax credits for charitable donations, which can amount to up to 29% of the total amount donated at the federal level. The Canadian tax credit for charitable contributions has three stages:
- 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.
- Provincial credits. In addition to the federal tax savings, donors may receive a larger refund from their province. To estimate the tax savings at both federal and provincial levels, one can use the tax credit calculator provided.
Are Charitable Contributions Tax Deductible in Canada?
Charitable contributions can be tax deductible in Canada, including various types of eligible donations such as gifts of real estate and crowdfunding campaigns. However, to qualify for tax deduction, the donation must be considered a “qualified gift”, meaning that the donor did not receive any payment or other benefit in exchange for the donation.
How to Ensure Compliance with Tax Rules for Charitable Fundraising?
-
Work with Non-Profit Organizations
To organize a charitable fundraiser as a third-party organizer, it is essential to seek permission from the non-profit organization you intend to support. It is recommended to work closely with the non-profit organization to ensure compliance with fundraising and donation regulations. According to the Canada Revenue Agency (CRA), a formal agreement with specific terms outlining the crowdfunding arrangement should also be in place. Additionally, it is suggested that another individual should do most of the work, and organizers should speak with the non-profit organization to understand its fundraising procedures, time, and resource requirements in advance. To issue tax receipts for gifts, a non-profit must be registered with the CRA. Stan Swartz, the President of Info money Solutions Inc. in Toronto, advises that many Canadian non-profits are not registered as charities, and it is always advisable to check the CRA website for this information.
2. Determining the Total Benefit
To ensure that a charitable fundraiser complies with tax regulations, it’s important to calculate the overall benefit received by attendees at the event. This includes items such as food, drinks, golf fees, and door prizes, among others. The charity must take into account the total value of these benefits and deduct that amount from the donation receipt given to participants. The CRA has specific rules for valuing these benefits, and if the value of the benefit exceeds 80% of the donation’s value, donors are not entitled to a receipt. Charities must gather and maintain accurate information to navigate this structured system.
3. Managing non-cash gifts appropriately
When it comes to non-cash gifts, such as donated property or presents sold at auctions, the giver can receive a receipt for the item’s value. The winning bidder can also be given a receipt for the amount paid for the item, minus its value, depending on the advantage rule. However, auctions are also subject to this rule, which means that a successful bidder will only be given a contribution receipt if their winning offer exceeds 80% of the item’s value. Michael Espinoza, a senior manager at Grant Thornton LLP’s national tax office, confirms this.
While Canadians are generous with their charitable donations and fundraising efforts, there may be confusion around adhering to tax regulations. This blog has provided guidance on how to give to charity while staying within these rules. It is important to keep in mind that seeking the assistance of a professional is always an option when facing challenges or uncertainty with tax-related matters.
Also read: The Role of Professional Accountants in Cloud Accounting for Canadian Businesses
What is an Individual Tax Number (ITN) and its significance for international students in Canada?
The Canada Revenue Agency (CRA) issues an ITN to individuals who are not eligible for a Social Insurance Number (SIN) for tax identification purposes. If you are an international student who is ineligible for a SIN, an ITN is necessary if you receive a scholarship from a university or need to file a tax return while living in Canada.
To ensure that your university can produce T4A tax forms, you must input either a SIN or an ITN into your Student Service Centre (SSC) by January. Additionally, depending on your circumstances, you may need to file a tax return as an international student residing in Canada.
Applying for an ITN is recommended if you plan to file a tax return in Canada or dispose of taxable Canadian property by applying to waive or decrease Canadian withholding tax on payments you receive. Keep in mind that an ITN can only be issued once, so it is worthwhile to obtain one even if your circumstances change. Not having an ITN may result in paying unnecessary withholding tax or missing out on certain tax benefits.
Eligible Applicants for ITIN
Regardless of their immigration status, both residents and non-residents are eligible to apply for an Individual Taxpayer Identification Number (ITIN). If an individual is not eligible for a Social Security Number (SSN), they can apply for an ITIN on behalf of themselves, their spouse, and any dependents. The following individuals may require an ITIN:
- Non-resident aliens who are required to file tax returns.
- Dependents or spouses of U.S. citizens or resident aliens
- Resident aliens who are required to file a tax return due to the number of days they have spent in the country
- Dependents or spouses of nonresident alien visa holders
In addition, taxpayers residing overseas can also obtain an ITIN.
Application Process
To request an ITIN, you must complete the IRS Form W-7, which is a one-page application with a nine-digit number similar in structure to an SSN. The following information must be provided on the application:
- Full name, birth name, and place of birth (if different)
- Proof of identification, such as a passport, driver’s license, or other government-issued identification. Original or certified copies of foreign immigration or status documents may also be accepted.
If you have previously used an ITIN, you must provide the number on your application.
Closing Statement
The Individual Tax Number (ITN) is a crucial identification number for your documents, particularly during tax season. It is a nine-digit number that both residents and non-residents in Canada can obtain. If you encounter any difficulties, don’t hesitate to contact the CRA or seek guidance from an expert for a better understanding.