What is Charitable Donation?
Charity begins at home goes a popular saying. Some organizations or people might be involved in charitable activities like helping out people and working as volunteers. There are others who might not have the time or resources to indulge in these activities. They might help out people by making a donation or gift of money to those in need. These donations are usually referred as charitable donations.
There are a large number of Non-Government organizations that run mainly on the back of such donations by philanthropists and trusts
founded by organizations. They function by collecting such money and then utilizing them for projects to help out the needy and the underprivileged. The government in a bid to increase such donations made them tax free. The government would not collect any tax on these gifts given to Non-governmental organizations.
Federal Law on such donations
Federal laws have been passed by the Canadian Government to make charitable donations tax-free. The details of such donations must be provided at the time of filing of T1 forms. The income tax
guide provides the various rules and regulations when applying for such tax deductions. It states that the maximum amount that maybe provided tax-free is 75 per cent of the net income. The same rule applies for both organizations as well as individuals.
There is also a provision for unused quota from previous years being carried forward for the next five financial years as well. The rule however is modified in the case of the death of the tax payer when even 100 per cent of the net income may be used up for making charitable donations and still remain tax-free. This provision is also valid for the next financial year after the taxpayer’s death. The organizations to which charitable donations can be made to be tax deductable are registered charities, Canadian amateur athletic associations, United Nations and its agencies and housing corporations inside Canada. The organizations when amalgamated or merged with other organizations will transfer their tax deduction limit to the new owner.
Misuse of Tax Deduction
The government is however very strict on the misuse of such deductions by attempting fraud by manipulating the real profit or loss figures. The federal government takes severe penal actions on any dealings of fraud using this method. The validity of the charitable organization to which a payment
has been made is also verified. This is done in order to ensure that the funds are not siphoned off using dummy upfront charity organizations.
The money siphoned off will then be rerouted so that the money is never tax deducted. This leads to storage of huge funds in underground accounts leading to huge losses for the government. The company may use these donations to mask the real loss being made by the organization. There are methods by which the money can be siphoned off by the top management of the organization from the stakeholders. The donation made to a non secure organization is not eligible for deduction. Tax deduction for charitable donations is a boon for the needy and underprivileged and should not be misused.