September 19, 2022
All Tax Articles

If you volunteer for a charity, you may be able to make a little money at no cost to the charity.

The charity cannot give you a donation receipt for services that you provide for free. A valid donation receipt for tax purposes can only be issued for a donation of money or property.

However, suppose the charity pays you for your services and you donate the money back?

If you are not in a fairly high tax bracket (taxable income, after all deductions, over $155,625 in 2022), this can pay off. Donations over $200 per year will give you a 29% federal credit plus a provincial credit, for a total savings of about 40-45% depending on the province. If you are in a lower bracket, the income you report from the charity will be taxed at a lower rate than the credit you receive. The lower your tax bracket, the higher the differential and thus the more profitable it will be to have the charity pay you.

If you are in Alberta or Nova Scotia, the benefit is even larger. Both of these provinces provide a special 21% provincial tax credit for charitable donations over $200. This makes the total federal/provincial credit worth 50%, even for someone paying a much lower marginal rate of tax.

Of course, the amount the charity pays you for your services must be reasonable, or the charity can run into problems if it is audited by the CRA. Also, if you are a director of the charity (or related to a director), you may not be permitted to be paid by the charity for your services. There are numerous rules, both federal and provincial, that govern charities and their activities.

Note also that if you are GST/HST-registered, or your revenues from self-employment exceed $30,000 per year, you will be required to charge the charity GST or HST on your services (unless you are working for it as an employee, in which case it needs to withhold payroll deductions on your pay). The charity will be entitled to a rebate for a substantial fraction of this GST/HST, however.

This letter summarizes recent tax developments and tax planning opportunities from a third-party affiliate; however, we recommend that you consult with an expert before embarking on any of the suggestions contained in this blog post, which are appropriate to your own specific requirements. Please feel free to get in touch with Lee & Sharpe to discuss anything detailed above, we would be pleased to help.
Sandy J. Lee

Hello my name is Sandy Lee, I am a partner at Lee & Sharpe.

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