Your business can claim charitable deductions and gifts up to 75% of your net income. But there are certain exceptions to this rule. The CRA allows claims to be made up to 100% of a person’s net income for the year one dies and the one before that. For corporate income tax returns, the rules are still the same- you can only claim up to 75% of the business’s net income. Any unused deductions can be carried forward to the following tax year.
Your tax deduction claim can be rejected if the organization you donate to doesn’t fall into any one of the following categories:
- A registered charity in Canada
- A national arts service organization
- Registered universities abroad but that are perceived to have students from Canada
- A registered housing corporation that was established in Canada to provide low-cost housing for seniors.
- A registered municipality or public body in Canada
- The UN and any of its agencies
- Foreign charitable organizations that have received a gift from her Majesty in Canada
What If You Donate to a US Charity?
Canada and the US signed a tax treaty that allowed businesses which earn a US income to deduct the donations made to US charities. Such businesses can claim up to 75% of their US income that is reported when filing their Canadian taxes.
How About Donations in kind?
Sometimes charitable organizations receive non-monetary gifts. In this case, it can be difficult to determine the fair market value of such gifts for tax purposes. But the CRA states that in situations such as these where it is difficult to determine the fair market value and the charitable donation is less than $1000, a member of the charity or any other person who has adequate knowledge of the property can determine its value.
Anyone who is given the task to determine the fair market value of the non-monetary gift needs to be competent and qualified to perform this job. In cases where the fair market value of the gift is perceived to be more than $1,000, the CRA recommends getting a third party to perform an appraisal. This means that you must find someone who is not associated with the charity or the donor to determine the property’s value.
Deterring Abuse of the System
There are of course situations where some donors will receive receipts that are way above the fair market value of the gift. The CRA keeps a close eye to identify such situations and take action. When there’s a red flag, the CRA will come knocking and request an audit. Once an audit is done and it reveals that you made an excessive claim for a gift donation, it will be rejected. You may also face a hefty penalty if found to have exaggerated the value of a gift. Consult your income tax lawyer for advice on what charitable donations your business can make to get deductions.