Wait before you donate

You’re hanging holiday decorations in your home when the phone rings. A friendly voice explains that he’s with the local police association, and asks for a donation to send neighbourhood kids to the circus, an outing it organizes each Christmas. Filled with yuletide generosity, you contribute $50.

Most of us have received a phone call like this. And more than a few of have been scammed.

“I can just about guarantee that kids will not be going to see a circus just because you gave these guys money,” says Douglas Boufford, a certified fraud examiner and chartered accountant in Kingston, Ont. He explains that callers claiming to be with police or fire organizations often deceive generous Canadians by using deceptive names. He recalls one caller who said he was with “the OPP,” which anyone in Ontario would associate with the provincial police force. “It probably stood for Other People’s Pockets,” he jokes.

Supporting good causes shouldn’t make you paranoid, but it’s worth being cautious; by taking time to donate thoughtfully, you’ll ensure your money goes to people who really need it, not to fraud artists. And by being aware of our tax laws, you’ll also keep more of your money away from the Canada Revenue Agency (CRA, formerly known as Revenue Canada), our friendly federal tax gatherer. Before you open your heart and your wallet, here are 10 things to consider.

Beware of scams

Nothing turns a philanthropist into a cynic faster than a charity scam. Unfortunately, these are common, especially after high-profile natural disasters or other tragedies. “There are more people involved in fraud now,” says Boufford, “because even if you get caught, the penalties in Canada are peanuts. And most police forces don’t have the time or money to investigate them.”

There’s a simple way to protect yourself from charity scams: Never give on-the-spot donations, either at the door or over the phone, even if the caller protests that the appeal is urgent. “There’s usually no rush to donate,” Boufford says. “If they come to your door, say, ‘Leave the pledge form and I’ll send a cheque.’” Never give cash or your credit card information — always pay by cheque made out to the charity, never to the individual doing the fundraising.

That said, the Heart and Stroke Foundation (in February) and the Canadian Cancer Society (in April) still use door-to-door canvassers. They’re usually volunteers from the community, they always carry ID, and they can hand you a tax receipt immediately. Of course, you can still donate later by mail if you’re uncomfortable giving at the door.

Do your research

Before you donate to any organization, make sure it’s legit: Ask for its full name and registration number, and look it up on the CRA’s list (cra-arc.gc.ca, click on Charities). If the organization doesn’t appear here, it’s not a registered charity. This site also lists any group that’s had its charitable status revoked — and there are more of these than you might think. Boufford also suggests taking a few minutes to Google the name of the charity. You may turn up news stories or discussion forums that can tip you off to potential problems.

Give proactively

Many of us donate only when we’re approached by fundraisers, often giving $20 or $50 to several charities without ever really feeling we’re making a difference. Instead, take the initiative and figure out how much you’re comfortable donating each year; then divide that among whichever charities truly fire your passion. “That’s the most rewarding,” says Andrea Seale, a consultant and owner of Blueprint Fundraising and Communications in Vancouver. “It’s a way to make sure you give to what you care about.”

Donate monthly

Having your donation billed to your credit card once a month has several benefits. You likely won’t notice an extra $25 on each statement, whereas a lump sum of $200 at the end of the year might sting. Yet in the former case you’ve donated 50 per cent more. You may also find that your chosen charity won’t repeatedly nag you, since it can rest assured you haven’t forgotten it. “Monthly donations are also good for the charity because they help cut down on administration,” Seale says, “and they create a reliable stream of money.”

Get the maximum tax credit

Most of us know charitable donations net a tax break, but have you checked out the details? Your donation must go to a registered Canadian charity, a registered amateur sports organization, or one of several other groups specified by the CRA. Not-for-profit organizations, worthy as they may be, aren’t charities. The same usually goes for your child’s school. “They may give you a receipt,” Boufford says, “but not a charitable donation receipt. There’s a big difference.” Donations to American charities aren’t eligible either, unless you’re claiming U.S. income.

It’s also important to understand that buying something at a fundraiser doesn’t count. “It has to be a donation that gives no material benefit to you,” Seale explains. “If you buy a raffle ticket and you have the chance to win something, you don’t get a tax receipt. If you buy a $100 ticket to a gala and you’re served a meal that’s valued at $75, you get a tax receipt for $25.”

Submit your original receipts — no photocopies, no cancelled cheques — when you file your tax return. Unlike deductions — such as RRSP contributions, which you can subtract from your taxable income — charitable donations earn a credit that is subtracted from the amount of tax you owe. Regardless of how much income you earn, donations under $200 earn a federal credit of 15.5 per cent, while amounts over $200 net a 29 per cent credit; there’s also a provincial credit, which varies. Boufford stresses that the higher-income spouse should claim all donations for a couple, regardless of who actually signed the cheque. That way, all but the first $200 will receive the maximum credit.

Consider gifts in kind

Not all of your giving has to be in cash. Many charities accept clothing, household items, computer equipment, even an old car, and can give you a tax receipt for the item’s fair market value. Technically, a gift is supposed to be valuated by an independent appraiser before you get a receipt. “I tell clients to have something on paper from a third party saying what the value is,” Boufford says. That said, if you donate a few boxes of children’s clothing to your local synagogue and it gives you an on-the-spot tax receipt for $25, the CRA is highly unlikely to question it. “That’s okay, as long as you’re not giving away mink coats and claiming thousands of dollars,” says Boufford.

Share your shares

Maybe you’d like to share some of your investing success with your favourite charity. If so, don’t sell your stocks or mutual funds and donate the cash — instead, make a gift of the investments themselves. Since May 2006, the federal government no longer taxes capital gains on securities donated directly to charity. Boufford gives the example of a stock you bought for $2,000, which has since shot up to $10,000. If you sell the stock first, you’ll pay tax on half of the $8,000 capital gain. Under the new law, by donating the stock directly, you avoid this tax — and if you’re in the highest bracket (45 per cent), you’ll save about $1,800. Meanwhile, both donations benefit the charity equally, and both get you the same $10,000 tax receipt.

Protect your privacy

Have you ever donated to a big charity and suddenly found yourself on the mailing list of several others? That’s because some organizations swap donor lists — a kind of mutual back-scratching — but only if you let them. “The laws are different in each province,” Seale explains, “but what’s common is that the charity needs your permission in order to share or trade your name.” Usually it requests permission with a check box on the donation form. “If you don’t see a check box, make sure you express your desire not to have your name traded,” she says. All charities must have a privacy policy, usually available on their website, that explains how they treat personal information.

Beware of tax shelter promoters

Donate a few hundred dollars to a charity and knock thousands off your tax bill? That’s the promise peddled by some tax shelter promoters using lines such as “By saving taxes, you save lives.” Don’t believe it.

While many tax shelters are legitimate, a number of for-profit companies in Canada are promoting a plan designed to exploit the tax laws governing charitable giving. The basic idea is this: You purchase a work of art, or medicines for developing countries, or some other product (which you often never see) and the promoter has it valuated at a price far in excess of what you paid. Then you donate the item to a charity and receive a tax receipt for the inflated amount.

Many of these companies are currently legal, complete with tax shelter identification numbers issued by the federal government. But that doesn’t mean they’ll be around for long. The CRA has been going after such companies for several years, and they’re winning the battles. The CRA has rejected charitable donation receipts submitted by thousands of people who used these bogus tax shelters, and has shut down many of the promoters. Boufford stresses that tax shelters and philanthropy are completely separate activities, and he has straightforward advice about noble-sounding schemes that seem to good to be true: “Don’t touch them. You don’t get something for nothing.” At the very least, talk to a tax expert and a lawyer first.

Think twice before earmarking funds

Many donors ask charities to direct their donation to specific causes — after natural disasters, for example, they may stipulate that it go directly to programs in the affected area. “It’s been a real trend over the last 10 years or so,” Seale says. “I’ve seen a lot more designated giving, and it’s something charities have to be able to accommodate.” The problem with earmarked funds, however, is that they don’t necessarily go where they’re most needed. After the 2004 tsunami in Asia, for example, the Red Cross received far more money than it needed to run its relief programs, and much of the excess could have helped more people in different parts of the world. (Doctors Without Borders, which found itself in the same predicament, asked donors for permission to redirect the excess, and actually gave some of the money back.) “If you have programs that are really important but they just aren’t very sexy, or they’re complicated to explain, then it can be hard to raise designated money for them,” Seale points out. If you trust an organization and believe in its work, you’ll help it more by allowing it to judge how to best spend your money.

Dan Bortolotti is the author of Hope in Hell: Inside the World of Doctors Without Borders, and has reported on the Canadian Red Cross’s tsunami relief work in Sri Lanka.

This article originally appeared in the November 2007 issue of More