Posted on July 3, 2018 at 1:55 PM by Josh Yaworski
Issuing Official Donation Receipts
In the charitable sector, there are many facts and features to learn. Most folks who serve the sector, paid or volunteer, didn’t go to school to learn the ins and outs of the trade. A lot of it is learned through osmosis, mentorship, hodge-podge training, self-managed learning, or trial and error.
There are numerous registered charities that don’t fully comprehend the rules administered by the Canada Revenue Agency (CRA). There are regulations about how a charitable organization can issue receipts for the donations it accepts. For instance, when “the CRA audits registered charities, approximately 89% are issuing inappropriate donation receipts” (page 34 of the CRA report Small and Rural Charities: Making a Difference for Canadians, 2008 http://www.cra-arc.gc.ca/E/pub/tg/rc4457/rc4457-e.pdf).
Did you know that charities are not obligated to issue tax receipts? Many charities choose to do it, because the tax advantage is appealing to donors. Tax payers can claim their donations on their annual income tax returns. The CRA suggests that registered charities issue receipts by February 28 of the calendar year that follows the year of donation, so that donors can file their taxes by the April 30 deadline.
It can be time intensive to give out receipts. A charity can set its own minimum donation amount to issue a receipt. For example, it may not make sense to give out receipts for donations under $20.00. Some charities might only issue a tax receipt for $1000.00 or more. Creating a written policy will help to justify a charity’s decision regarding a minimum donation amount for issuing a receipt.
A charity cannot issue an official donation receipt in the name of anyone except the true donor. Under no circumstances should a registered charity lend its registration number to another organization for receipting purposes. A charity that lends its registration number risks losing its charitable registration.
Also, a registered charity that issues an official donation receipt that includes incorrect or incomplete information is liable to a penalty equal to 5% of the eligible amount stated on the receipt. This penalty increases to 10% for a repeat offence within five years.
A registered charity that issues an official donation receipt that includes deliberately false information is liable to a penalty equal to 125% of the eligible amount stated on the receipt. If the charity is liable for penalties over $25,000 for issuing false receipts, that charity is also liable to one year's suspension of its charitable status. A registered charity that continues to contravene the receipting regulations of the Income Tax Act could have its registration revoked.
Under the Income Tax Act, a registered charity can issue official donation receipts for income tax purposes for donations that legally qualify as gifts. What is a gift? There are cash gifts and there are non-cash gifts.
For non-cash gifts to qualify for a tax receipt, the item must be donated with charitable intent. A separate receipt must be issued for each non-cash donation. When people donate tangible property, a charity may issue an official donation receipt if the fair market value can be determined. At the time of donation, if fair market value cannot be determined, a receipt cannot be issued.
All official donation receipts for income tax purposes must contain the following:
1) a statement that it is an official receipt for income tax purposes;
2) name and address of the charity as on file with the Canada Revenue Agency;
3) charity's registration number;
4) serial number of the receipt;
5) place or locality where the receipt was issued;
6) day or year donation was received;
7) day on which the receipt was issued if it differs from the day of donation;
8) full name, including middle initial, and address of the donor;
9) amount of the gift;
10) value and description of any advantage received by the donor;
11) eligible amount of the gift;
12) signature of an individual authorized by the charity to acknowledge donations;
13) name and Web site address of the Canada Revenue Agency
For non-cash gifts (gifts-in-kind), these additional elements:
14) day on which the donation was received (if not already indicated);
15) brief description of the property transferred to the charity;
16) name and address of the appraiser (if property was appraised); and
17) deemed fair market value of the property in place of amount of gift above.
Mark Blumberg reminds us that there are four elements a non-cash gift must possess to be receiptable. If any of these four elements is not present, then a receipt should not be issued:
1) Voluntary. “If a donation is made as a result of a contractual or other obligation – for example, a court order – it is not eligible for a receipt.”
2) A complete transfer. “It is not enough to pledge that you will one day give something to the charity or provide the object, but not do everything required to change the ownership. For example, it is not sufficient to provide a house and key to a charity – someone needs to actually arrange that the house is completely transferred over to the charity at the land titles and registry office.”
3) Property. “Property includes cash, cheques, credit card, money order, wire transfer, and certain tangible items, such as computers, furniture, cars, land, but does not include services.”
4) Intention to make a gift. “Under the Income Tax Act, if a donor receives an advantage that is greater than 80% (of the gift’s market value), then generally it is assumed that there is no donative intent and the person does not receive a receipt.”
Even though charities often make unintentional mistakes when issuing official donation receipts, it cannot rely on ignorance as a defence. There are valuable resources about receipting available on the CRA website. Carve out some time to do some self-managed learning. It could protect a charity against penalties or charitable status revocation.
CRA
Issuing Receipts
Determining
Fair Market Value of Non-Cash Gifts
Samples
of official donation receipts
Resources
for Charities
Top
charity law compliance issues for Canadian registered charities
Blumberg's Receipting Kit 2018