Charitable Contributions and Gifts:
no free lunch
We should carefully consider the advantages, disadvantages and social attitudes
attached to charitable contributions/gifts which are allowable for the purposes
of computing income taxes. Also, we should address the influence that greed
has on both the giver and the given.
They may be in cash or kind. Cash is easy -- say no more. Kind is often
difficult to evaluate. The giver would like the value to be set as high
as possible as it directly and favourably influences income taxes. Sometimes
the gift can trigger capital gain income taxes thereby reducing the overall
benefit. But that is another story.
If one gives a service or a product and receives a charitable receipt which
is good for income tax purposes then the gift must be examined to see if
it has created taxable income in the hands of the giver. If an accountant
provides personal services and takes as payment a charitable receipt, then
the value of the receipt constitutes taxable income to the accountant. Depending
on the tax bracket of the accountant and providing the income is declared,
the net income tax could be a payable rather than a refund.
The general advantage to giving is social as opposed to financial. Since
income taxes are not at a 100% rate, there is always a net negative cash
position at the end of the day. (If taxes were at 100% then the gift would
be fully recoverable as a full reduction in tax). We have become convinced
that giving is good. We also believe that most if not all of it goes to
those in dire need.
Not so. While many institutions keep their operating costs below 20% of
donations, there are still far too many which use the system to pay un-necessary
and even exorbitant wages, salaries and consulting fees to friends and cohorts.
While organizations which have charitable number granted to them by Revenue
Canada must file annual returns of information to Revcan, it is just a bureaucratic
system of employing civil servants: the institutions are not adequately
supervised.
The major disadvantage to giving is that not nearly enough of the gifts
get to the people for which they were intended. There is a better way. It
is far more satisfying and effective to make your gift directly to the recipient
and even to be directly involved in the utilization of the gift. Don't give
the panhandler money; take the person into the coffee shop and buy some
food and drink. While it may be a major pain and inconvenience, your gift
will be far better utilized and you will receive a much bigger bang for
your buck. Charity should and does begin and end at home.
Now to the greed bit. From day one, people have been dreaming about getting
something for nothing. From time to time, entrepreneurs rise to the surface
with schemes which seem to fulfil that unattainable dream. The proposition
looks and sounds perfect. There are often opinions and endorsements attached
which appear to guarantee that the holy grail has been found and it is yours
for the taking. Most of the schemes include paying some money to the promoter
and getting money back on your income taxes. In your heart you know it is
not true, but how could so many wise people be wrong? They are not wrong:
they are part of the system. When it fails and you are called upon by Revcan
to pay up all of those re-assessed taxes plus exorbitant interest, the entrepreneur
and his buddies will be laughing all the way to their bank and you will
pay again. There is no free lunch in income taxes. Like the pyramid letter
scheme, the only ones to win are the takers: the givers always lose.
