Let's Talk about Charity!
Updated: Sep 20, 2020
Over the last few months, we’ve had several women reach out to us and tell us how passionate they are about supporting great causes. Whether it is a friend in need, organizations in your community, social movements that inspire you or disasters around the world, we have all been there. The need to help others who are less fortunate is one of the most essential human traits we share. Women tend to be givers, philanthropists, and nurturers. So how do we go about helping while maximizing the benefit of every dollar we give?
The first step when supporting any cause is to do your due diligence. While there are many causes worth supporting, not all donation campaigns are created equal. Some campaigns are driven by organizations that are recognized by their local and federal governments, such as nonprofits and charitable organizations. Other campaigns are privately sourced through individuals such as crowdfunding campaigns. One of the most recognized crowdfunding platforms is GoFundMe.com.
Individuals can create a campaign by creating an account, setting a goal, and sharing their story. They are then responsible to market this campaign to raise funds for their cause. Donations are subject to fees on the transactions in the campaign. Individuals can raise funds for a variety of causes such as medical treatment costs and emergency situations. Crowdfunding is a beautiful example of a community supporting individuals undergoing difficult circumstances. However, one needs to be diligent in ensuring that the causes are legitimate and that the funds raised will help the beneficiary. In Canada, individuals cannot claim a tax receipt for donating to crowdfunding campaigns.
Nonprofit and charitable organizations - what’s the difference?
Another means to support charitable causes is through non-profit organizations and charitable organizations. The main difference between the two, from a finance perspective, is that charitable organizations can issue tax receipts to donors and are thus under greater scrutiny from the tax regulators. They have stricter operational and fundraising requirements and can lose their charitable status if they infringe upon the legal requirements set out to them.
You may be wondering what the purpose of the tax receipt is and why it should matter when donating. Tax receipts are issued by charitable organizations whenever you make a donation (usually you will receive the tax receipt at the beginning of the following year). In Canada, donations made to charitable organizations can be eligible for a tax credit when filing your taxes. Tax credits directly reduce the amount you owe in taxes. Here is how it works:
Individuals can claim up to 75% of their net income in charitable donations in any given year. So if you make $50,000 in gross taxable income this year, you can claim up to $37,500 in charitable donations.
In addition, any donations made in previous years (up to 5 years) can be claimed retroactively. In case you’ve forgotten to claim your donations from prior years, there is always a chance to catch up!
Different provinces and jurisdictions have different rules on the eligible tax credit amounts. For example, in Ontario, if you make $50,000 a year in gross taxable income and decide to donate $500 in a given year, your tax credit from the government is $160.58.
A useful way to calculate your tax credit for any given year can be done through this calculator. ( link - https://www.canada.ca/en/revenue-agency/services/charities-giving/giving-charity-information-donors/claiming-charitable-tax-credits/calculate-charitable-tax-credits/calculator.html)
Here are ways to maximize your tax credit:
If you donated less than $200 in the tax year, it might be worthwhile to hold off on claiming a tax credit until a future tax year. It’s better to combine donations to get over $200 so that you have a greater tax credit.
If your partner makes more than you in income, it is best to make the donation and claim the tax credit under their name.
During times of crisis, the Federal government may make an announcement that they will match donations made supporting an individual cause. Matching funds can be a great way to get the most bang for your buck. Domestic relief efforts are generally announced by Public Safety Canada while international relief efforts fall under Global Affairs Canada. There are guidelines on how to ensure your donation is considered under the matching fund extended at the time. A great source would be to review the guidelines on the CRA website. (link - https://www.canada.ca/en/revenue-agency/services/charities-giving/giving-charity-information-donors/making-a-donation/donating-help-victims-a-disaster-other-emergency.html)
Nonprofits may also empower and support great causes and can be worthwhile to donate to. It is important to ask questions about the long-term goals of the organizations, past programs they’ve created and the value of donation to the campaign at hand. Keep in mind that administrative fees in some organizations can reduce the value of your donation. This is not to say not to support such causes but rather as a means for you to be informed as a donor. There is often a balance and a greater benefit of donating to nonprofits that have greater reach and impact vs. the administrative cost.
To end with the words of Maya Angelou, “The difference between charity and philanthropy is the distance of the soul. To be philanthropic is to give something, to be charitable is to give one’s own heart”.