Over five million Canadians generously donate to charity every year. In 2019 alone, Canadians donated $10.3 billion.
In addition to supporting worthy causes and organizations, a key incentive can be the tax benefits available through charitable giving by way of tax credits.
These benefits extend to estates. In fact, the issuance of a charitable tax receipt to an estate can be a primary motivating factor to benefit charitable organizations under a will or as the beneficiary of a life insurance policy. This scheme can assist in offsetting some of the taxes payable by an estate while supporting charitable causes.
Recent news regarding certain GoFundMe drives made me think about the tax benefits relating to charitable giving through GoFundMe. In past years, when supporting worthy causes through the platform, I noticed that a charitable tax receipt had not been issued. While this did not dissuade me from supporting such causes, it can have serious implications for those who make meaningful donations under the impression that they will receive a corresponding tax receipt.
There were over 175 thousand COVID-19 related GoFundMe campaigns between January 2020 and October 2021, raising over $416 million. However, GoFundMe campaign organizers are often individuals or groups, rather than registered charities. Contributions are more likely to be considered “gifts” rather than being tax-deductible charitable donations. While donating to help support the victim of a fire who lost their home and personal belongings or contributing toward the costs of an unforeseen surgery for a neighbour’s pet may seem like worthwhile causes for many of us, the recipients of such gifts are not ordinarily registered charities who can issue a charitable tax receipt.
Since 2019, a partnership with PayPal Giving Fund Canada has allowed Canadians to use GoFundMe to create and donate to a registered charity campaign through the platform. This means that some contributions through GoFundMe may actually constitute tax-deductible donations to PayPal Giving Fund Canada, which itself is a registered charity that receives and grants donations to other eligible charities.
Where a GoFundMe contribution is better classified as a gift, a gift tax return may be required in jurisdictions like the United States, where there are annual gift tax exclusions (with a limit of $15,000 for the 2021 tax year). Furthermore, in order to be exempt from applying towards such a limit, contributions need to go directly to medical or educational institutions through GoFundMe, which is rarely the case.
Whether the tax treatment of a contribution ultimately alters a person’s decision whether or not to support a cause, it is important to keep in mind possible tax benefits (and potential obligations) when choosing to support what appear to be charitable causes in less traditional ways.
Thank you for reading,
Nick Esterbauer