Tax tip # 1: A charitable tax credit summary
January 05, 2016

Recording charitable donations must be done properly in order for companies to receive a charitable tax credit. Below is a brief rundown of how much charitable giving Canadian businesses can claim, what organizations this charity can go to and how businesses can avoid charity fraud.

Canadian corporations that make charitable donations are eligible to receive a nonrefundable tax credit. A business cannot claim a credit greater than 75 percent of its net income, and all claimed donations must be made by Dec. 31 of the respective tax year. Unclaimed donations from the prior five years can also be applied toward the current year's credit.

Registered charities
In order to receive a charitable tax credit, businesses must submit an official donation receipt given by a registered charity or other organization. All registered charities must apply for such status through the Canada Revenue Agency. Registered charities are obligated to improve education, advance a religion, assist in poverty relief and/or benefit society in some other way approved by Canadian law. Registering as a charity exempts the organization from income tax and allows it to issue donation receipts.

Nonprofits, on the other hand, are distinct from charities. These exist for a purpose other than profit (including recreational purposes) and cannot offer donation receipts.

It's important to note that registered charities are not required to give donation receipts, and some only issue them if donations exceed a minimum amount. Nevertheless, corporations cannot receive a tax credit without a receipt, so be certain to request one. Businesses should keep this receipt within their records for five years for future financial reporting, should the CRA request it.

The receipt must indicate the donation's fair market value, which the CRA identifies as the price at which an informed seller would purchase the item from an informed buyer within an open and unrestricted market. The CRA may request an independent appraisal if the fair market value is determined to be greater than $1,000.

Avoiding fraud
Businesses can avoid losing money and inventory via fraud by donating only to qualified recipients. Qualified donees include registered charities, athletic associations, foreign universities accepting Canadian students, the United Nations and its agencies and more. Registered charities are listed on the CRA Charities Listings webpage. Remember, these are the only organizations that can supply a qualified donation receipt. Businesses can also use this page to review a charity's financial information by checking its Registered Charity Information Return on the CRA Charities Listings page.

Nexus: G-WEBCD5