Q&A: Tax break too good to be true?

Question: I have recently been introduced to a charity that claims that you can make a donation that will purchase an amount of medication for a third world country and in turn you will receive an inflated tax receipt that will yield a tax credit of approximately 30-40 per cent more than your initial donation.

I always look at things with the idea that if it looks to good to be true then run away. A $5,000 donation would be difficult for us but it would be nice to do if we could possibly be looking at a tax credit that is to bring in an additional $9,000 when the tax return comes in, making $4,000 profit. Am I right to turn and run or can this be an avenue to increase your tax refund? — J.M.

Gordon Pape’s answer: Let’s just say that I would not advise jumping in with both feet. The concept is certainly laudable — help people in the third world and enrich yourself in the process (at the expense of the Canadian treasury, I might add). And maybe the Canada Revenue Agency will allow you to get away with it — but I doubt it.

In recent years, the CRA has cracked down on aggressive tax shelters and charities that purport to enable people to aim larger tax deductions than the amount of money they actually contribute. In some cases, this has resulted in deductions being totally disallowed. To find out more, visit the Taxpayer Alert page of the CRA website at www.cra-arc.gc.ca/agency/alert/menu-e.html

The charity to which you refer may be okay. But you should always be wary when an organization offers to give you a tax receipt for more money than you put in. You could end up in an unpleasant fight with the government.

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