This blog is written by our law summer student, Michelle Farb
Donating to charities is not as easy as it once was. With the increased number of charities, online donations, rise of fraud, and various tax implications, donors must be cautious and do their due diligence prior to donating.
The information below is meant to assist individuals in finding and donating to charities. It also outlines some of the deceitful schemes and potential consequences of donating to fraudulent charities.
Finding a Charity
How do I find out about Charities?
The Canada Revenue Agency (CRA) maintains an online, public, and searchable database for the listing of charities. Individuals can search for registered charities, in addition to revoked, annulled, suspended, or penalized charities. Upon searching the database, the charity’s activities, contact and financial information is listed. This information provides potential donors with a better idea of how a charity’s resources are devoted to charitable activities.
To search the charities listing visit this link:
Charities Listings Menu.
Making a donation
Official donation receipts & charitable tax credits
Only Canadian registered charities or other qualified donees can issue official donation receipts that quality for tax credits. You cannot claim a charitable tax credit or deduction unless you have an official donation receipt. Examples of qualified donees include: registered charities, the United Nations and its agencies, and registered Canadian amateur athletic associations.
How do I donate wisely and avoid fraud?
Firstly, confirm that the organization is a Canadian registered charity or a qualified donee. Next, visit the charity’s web-site to get to know the charity, learn about its activities, and how it is managed. Lastly, be aware of donation schemes that promise returns greater than your donation.
Some tips for donating include: write cheques payable to the charity and not to individuals, make sure your online payments are secure, and refuse to donate if there are signs of fraud or pressure to donate quickly.
What qualifies for a charitable tax credit?
Examples of donations that usually qualify for tax credits: money, securities, personal-use property such as prints and jewelry, and inventory such as art or rare books.
Examples of donations that do NOT usually qualify for tax credits: contributions of services such as skills, time, or effort; certain admission fees to events or programs; and the purchase price of a lottery ticket or another chance to win a prize.
Donation Schemes, Illegal Tax Filings, and Fraud
Individuals are sometimes approached to donate through tax shelter arrangements. Tax shelters include either gifting arrangements where the donor incurs a limited debt related to the gift (generally, where the borrower is not at risk for repayment), or the acquisition of property where it is represented to the donor that the tax benefits and deductions arising from the arrangement will be equal to or exceed the net costs of entering into the arrangement or the property. Promoters of tax shelters must obtain a tax shelter identification number from the CRA. The number is only meant to track and identify the schemes and participants. It does not entitle participants to any of its related benefits. The CRA reviews all tax shelters and has audited many of them. Generally, the CRA reduces the credit to no more than the donation. In some cases, the credit is reduced to less than the donation or even to zero. The CRA can even charge penalties and interest.
Illegal Tax Filings
Even when a professional prepares your tax return, you are the one responsible for the information provided. The CRA takes Canada’s tax laws seriously and takes tax abuse even more seriously. Tax fraud places an unfair burden on law-abiding taxpayers and businesses. If you want to report a tax cheater, you can do so anonymously by contacting the CRA’s enforcement division.
If you suspect you made a mistake with your taxes, you can come forward through the CRA’s Voluntary Disclosures Program. If you make full disclosure before any compliance action or investigation has begun, you only pay your taxes plus any interest owing.
Ways to eliminate illegal tax filings:
- If you hear of a tax preparer offering a larger refund than other preparers, don’t be fooled. Stay away from false charitable donations, false business expenses, and false child care expense claims
- Never sign blank tax forms
- Ensure your tax preparer provides you with a copy of your tax return for your records
If you suspect that a charity, registered or otherwise, is involved in fraudulent activities, you can contact the Anti- Fraud Centre by going to Anti Fraud Centre or by calling 1-888-495-8501. If you want to make a complaint about a registered charity, you can contact the Compliance Division of the Charities Directorate at Charities Compliance Divison.
Signs of Fraud:
- Inappropriate pressure to give donations immediately
- Telephone calls thanking you for a pledge you don’t remember making
- Organizations that use very similar names to popular charities
- Requests to send cash or money orders, rather than cheques or by charging a credit card
- Overly-friendly canvassers who ask personal questions or canvassers who are reluctant to provide details of the organization
- Strange combinations of call display numbers such as 888-888-8887. This suggests a caller is attempting to hide their number
- The use of free e-mail addresses such as hotmail. Again, this suggests that the individual is trying to hide their identity
If you believe you have been a victim of a tax shelter arrangement or some type of charity fraud, the Devry Smith Frank LLP Tax Litigation Department can assist you.