It’s a common practice for Canadian nonprofits to issue gift receipts to their donors. It’s an equally common practice for those donors to write off their gifts as charitable donations and claim a sometimes hefty deduction for the money they gave. But not everything that’s given to a charity counts as a tax-deductible donation, and you have to be careful with what gets claimed. If your client is a nonprofit that solicits unapproved forms of donations, or if you do the books for a client who wants to write off charitable giving, you need to know the Canada Revenue Agency’s rules for giving to registered charities at tax time.
The first thing you need to know about charitable donations is that the CRA considers nonprofits to be operating in an opt-in system, rather than the default system the IRS uses for nonprofits in the United States. To be a deductible charity, a nonprofit must register with the CRA and receive permission to issue charity receipts. This can be an involved process, and not every organization bothers with it. Before advising your nonprofit clients, be sure to ask whether they’re registered.
Assuming they’re on the CRA’s registry, there are certain types of donations that can’t get tax receipts. Gift cards are one type of donation that doesn’t count at tax time. Credit at a store, such as Amazon.com, or payment-in-kind barter arrangements are others. Most charities are also constrained to issue receipts only for voluntary donations. Gifts ordered by the court, or included in a legal settlement, are almost never treated as tax-deductible.
The CRA has some pretty tight rules for what is, and what is not, a charitable donation your clients can write off at tax time. Before advising your clients, remember to check the laws for your province and make sure the nonprofit is on file with the CRA.