January 30, 2012

Blumbergs’ Canadian Charity Law List - January 2012

Here is the Blumbergs’ Canadian Charity Law List - January 2012

January 08, 2012

Receipting Kit for Canadian Registered Charities launched by the Charity Law Information Program

The Charity Law Information Program (CLIP) has just released the Receipting Kit for Canadian Registered Charities.  The kit is 25 pages long and provides an overview of what a registered charity needs to generally know about receipting.  As well, there is an attachment which is about 115 pages long with CRA guidance on receipting and even a CRA auditor checklist on receipting.

The kit is available for free. 

Here are the links:

Receipting Guide
http://www.capacitybuilders.ca/clip/documents/ReceiptingKit-ReceiptingGuide.pdf

Receipting Policies and Documents
http://www.capacitybuilders.ca/clip/documents/ReceiptingKit-CRAPoliciesandDocuments.pdf

The kit was prepared as part of CLIP which receives project funding from the Charities Directorate of the Canada Revenue Agency.

Here is a short link to this page:  http://bit.ly/A2jbA2

August 27, 2011

CRA provides guidance on donation of Gift Certificates or Gift Cards to Canadian charities

The CRA has just issued a revised guidance on “Donation of Gift Certificates or Gift Cards Guidance”.  This guidance replaces Policy Statement CPS-018, Donations of Gift Certificates.  Gift certificates and gift cards are frequently donated to charities but can the charity issue a tax receipt?  Well it depends. 

Here is the CRA Guidance

http://www.cra-arc.gc.ca/chrts-gvng/chrts/plcy/cgd/gftcrt-eng.html
Donation of Gift Certificates or Gift Cards Guidance
Reference number
CG-007
Issued
August 15, 2011

This guidance replaces Policy Statement CPS-018, Donations of Gift Certificates.

Summary
Registered charities can issue official donation receipts for income tax purposes for the eligible amount of gifts of gift certificates and gift cards under specific circumstances. This guidance outlines the Directorate’s policy on these circumstances.

1. Definitions
Eligible amount: The eligible amount of a gift is, under the proposed split-receipting rules, the amount by which the fair market value of the gift exceeds the amount of the advantage. The amount of the advantage is generally the value, at the time the gift is made, of any property, service, compensation, or other benefit received, or expected to be received in the future, as partial consideration for, or in gratitude for the gift. Generally, for the purposes of determining the eligible amount of the gift, the fair market value of a property that is the subject of a gift is deemed to be the lesser of the fair market value of the property, otherwise determined, and the cost of the property immediately before the gift is made if the donor acquired the property less than three years before the day the gift is made.

Gift certificate: a certificate with a clearly stated monetary value that entitles the recipient to purchase goods and/or services in the issuer’s establishment.

Gift card: a card that has a clearly ascertainable monetary value that entitles the recipient to purchase goods and/or services in the issuer’s establishment.

Holder: person who has acquired a gift certificate. A holder cannot be an issuer.

Issuer: the person (individual, retailer, business) that creates a gift certificate or a gift card redeemable for goods and/or services from that person. An issuer cannot be a holder.

For purposes of this policy statement, “gift certificate” and “gift card” are collectively referred to as “gift certificates.”

2. Application
2.1. Registered charities often accept gift certificates and use them in fundraising events, such as auctions and raffles, or to acquire goods or services for use in their charitable activities.

2.2. A charitable donation must involve a transfer of property of any kind, real or personal, corporeal or incorporeal, which includes rights. A right is a legally enforceable claim by one person against another. Whether the donation of a gift certificate constitutes a transfer of property depends on the particular circumstances.

2.3. A gift certificate can be considered to be a promise from a merchant to supply goods and/or services in an amount equal to the dollar value of the certificate. A gift certificate constitutes property and a right, but only if the promise is enforceable, that is, only when the certificate is issued for consideration.

2.4. Registered charities may issue an official donation receipt for a gift certificate only in the following situations:

a) when the holder of a gift certificate that has been issued for consideration (the terms of which permit its assignment) donates the gift certificate to a registered charity, the charity may issue an official receipt to the donor for the eligible amount of the gift;

b) when the issuer of a gift certificate donates it to a charity for no consideration, the registered charity can only issue an official receipt at the time the charity receives property when is redeems the gift certificate. The official receipt may be issued for the eligible amount of the gift of the property to the charity by the issuer; or

c) when the issuer of a gift certificate gives it to a charity for partial consideration, the charity may issue an official receipt to the donor for the eligible amount of the gift.

A receipt that the charity issues should specify the nature of the property it received in exchange for the gift certificate, as well as the eligible amount of the gift.

2.5. Registered charities cannot issue official donation receipts for gift certificates they receive directly from the issuer for no consideration. However, when these gift certificates are redeemed for property, official donation receipts can then be issued as stated above in 2.4.(b)

3. Examples
3.1. Holder owns a gift certificate and donates it to a charity

When a gift certificate has been issued for consideration and the terms permit its assignment, upon donating the gift certificate to a registered charity, a holder who has purchased or otherwise acquired a gift certificate, can receive an official donation receipt for the eligible amount of the gift.

3.2. Issuer donates a gift certificate to a charity for no consideration

When the issuer transfers a gift certificate directly to a charity for no consideration, there has not been a valid transfer of property as noted in paragraph 2.2 above. As a result, the issuer is not entitled to an official donation receipt at the time the transfer is made. In this scenario, the issuer does not realize any income for having transferred the gift certificate since the transfer does not constitute a transfer of property. The issuer may be eligible for an official donation receipt if the charity redeems the certificate for property. Therefore, to be eligible for a receipt, redemption of the certificate must result in a transfer of property that would otherwise have constituted a gift. A receipt cannot be issued if the charity redeems the gift certificate for a contribution of services, such as time, skills, or effort, because these are not property and do not qualify as charitable donations.

In this scenario, once the charity redeems the certificate, the issuer of the gift certificate will realize income equal to the value of the property gifted. Generally, when the issuer is carrying on a business and the property gifted is inventory, the issuer can deduct an amount equal to the cost of goods gifted. (see CPC-018, Gift Out of Inventory) The charity may issue a receipt for the eligible amount, which is the amount by which the fair market value of the property received from redeeming the certificate exceeds any advantage received by the donor. Generally, for the purposes of determining the eligible amount of the gift and determining the value of the property gifted for purposes of the income inclusion noted above, the fair market value of a property that is the subject of a gift is deemed to be the lesser of the fair market value of the property otherwise determined and the cost of the property immediately before the gift is made if the donor acquired the property less than three years before the day the gift is made. There are certain exceptions to these rules including the gifting of inventory.

3.3. Issuer gives a gift certificate to a charity for consideration

When the gift certificate is issued to the registered charity for consideration equal to the fair market value, the issuer must include the consideration received in their income. Since the consideration the issuer receives constitutes an advantage, the eligible amount of the gift will be NIL. Therefore, no receipt should be issued. When the issuer is carrying on a business and the property gifted is inventory, the issuer will generally be entitled to deduct an amount equal to the cost of inventory sold when the gift certificate is redeemed.

If the consideration is less than the fair market value of the certificate, the issuer must include the fair market value of the certificate in income. However, the registered charity may issue an official receipt for the eligible amount of the gift. Again, when the issuer is carrying on a business and the property gifted is inventory, the issuer will generally be entitled to deduct an amount equal to the cost of inventory sold when the gift certificate is redeemed.

3.4. Charity transfers an issuer donated gift certificate to a third party

When the issuer donates a gift certificate directly to a charity, and the charity transfers the certificate to a third party (for example, at an auction or a raffle), the redemption of the gift certificate by the third party does not entitle the issuer to a receipt. The honouring of the gift certificate by the retailer cannot transform the character of the original transfer of the gift certificate to the charity into a gift. Each transaction must be viewed independently when determining whether a gift has been made.

In this scenario, no income is realized for the donation and no donation deduction or tax credit can be claimed. However, when the issuer has donated and redeemed a gift certificate for inventory for the purpose of earning income in its business, a deduction is generally available for the cost of the goods [Footnote 1].

4. Value of a gift certificate

In some instances, the fair market value of a gift certificate may not be the equivalent of its face value. Factors that may affect the fair market value of the gift certificate include:

•the flexibility of the certificate—does the certificate expire after a certain time, is it usable only within a specific timeframe, does it restrict the purchaser to specific merchandise within the store; and
•its usefulness—does the retailer offer merchandise for the amount of the gift certificate, or will the certificate account for a portion of regular selling property (for example, a $50 gift certificate at a car dealership).
5. Information that must appear on official donation receipts
A registered charity must ensure that the official donation receipts it issues comply with the requirements of the Income Tax Act. The requirements are listed in the Issuing receipts section of the Charities and Giving Web pages.

References
•Income Tax Act, R.S.C. 1985, (5th supp.) c.1. s.248(1)
•Income Tax Technical News, No. 26
Footnotes[Footnote 1] Section 9 of the Income Tax Act

February 08, 2011

Top Receipting Concerns for Canadian Registered Charities by Mark Blumberg for the OBA Institute

Here is a copy of my paper delivered at the Ontario Bar Association (OBA) Institute 2011 entitled Top Receipting Concerns for Canadian Registered Charities.  I was delighted to be co-chairing the program and that there were 90 lawyers out for the sessions.

Here is a copy of my article entitled Top Receipting Concerns for Canadian Registered Charities.

As noted in the paper here are some additional resources:

CRA’s Operating a Registered Charity – Issuing Receipts
http://www.cra-arc.gc.ca/chrts-gvng/chrts/prtng/rcpts/menu-eng.html

CRA Webinar on Gifting and Receipting
http://www.cra-arc.gc.ca/chrts-gvng/chrts/cmmnctn/wbnrs/wtchwbcsts-eng.html?clp=v20100415-eng

Blumbergs CanadianCharityLaw.ca section on receipting
http://www.canadiancharitylaw.ca/index.php/blog/category/blog/category/receipting_by_charities/

Various Webinars on legal issues, including receipting, for Canadian registered charities by Mark Blumberg http://www.globalphilanthropy.ca/index.php/blog/comments/webinars_on_canadian_charity_law_-_charity_law_information_program_clip_by_/ Blumbergs

August 01, 2010

Why can gifts of services not be recognized with a donation receipt by a Canadian registered charity

Canadian registered charities cannot issue official donation receipts for services such as a volunteer spending time or a donation of office space.  Here is more information from the Charities Directorate of CRA:

http://www.cra-arc.gc.ca/chrts-gvng/chrts/prtng/gfts/srvcs-eng.html

“Gifts of services

Can a registered charity issue official donation receipts for gifts of services?

A charity cannot issue a receipt for a gift of service. At law, a gift is a voluntary transfer of property without consideration. Contributions of services (for example, time, skills, effort) are not property. Therefore, they do not qualify as gifts for the purpose of issuing official donation receipts.

Registered charities cannot issue official donation receipts for gifts of services. However, they can issue receipts under the following conditions:
• If a charity pays a service provider for services rendered and the service provider then chooses to donate the money back, the charity can issue a receipt for the monetary donation (this is often referred to as a cheque exchange). In such circumstances, two distinct transactions must take place:
o a person provides a service to a charity and is paid for that service; and
o that same person makes a voluntary gift of property to the charity.
• A charity should also make sure that it keeps a copy of the invoice issued by the service provider. The invoice and cheque exchange not only ensure that the charity is receipting a gift of property, but they also create an audit trail, as the donor must account for the taxable income that is realized either as remuneration or as business income.
• A charity should not issue an official donation receipt to a service provider in exchange for an invoice marked “paid”. This procedure raises questions as to whether in fact any payment has been transferred from the charity to the service-provider and, in turn, whether any payment has been transferred back to the charity.
References
• CSP-S03, Services
• CPC-017, Gifts of Services”

CRA’s Checklist for Canadian registered charities issuing complete and accurate donation receipts

Here is a copy of CRA’s Checklist for Canadian charities issuing complete and accurate donation receipts.  In a short checklist CRA reminds Canadian registered charities of some basic matters when it comes to receipting.

http://www.cra-arc.gc.ca/chrts-gvng/chrts/chcklsts/rcpts-eng.html

Issuing complete and accurate donation receipts
A registered charity may only issue official receipts for donations that legally qualify as gifts. An official receipt must contain all the information specified in Regulation 3501 of the Income Tax Act.
Checklist
Do the donation receipts of the charity contain these mandatory elements:
• For gifts of cash:
 a statement that it is an official receipt for income tax purposes;
 the name and address of the charity as on file with the CRA;
 the charity’s registration number;
 the serial number of the receipt;
 the place or locality where the receipt was issued;
 the day or year the donation was received;
 the day on which the receipt was issued if it differs from the day of donation;
 the full name and address of the donor;
 the amount of the gift;
 (under proposed legislation) the value and description of any advantage received by the donor;
 (under proposed legislation) the eligible amount of the gift;
 the signature of an individual authorized by the charity to acknowledge donations; and
 the name and Web site address of the Canada Revenue Agency (http://www.cra.gc.ca/charities).
• For non-cash gifts (gifts in kind), these additional elements:
 the day on which the donation was received (if not already indicated);
 a brief description of the property transferred to the charity;
 the name and address of the appraiser (if property was appraised); and
 (under proposed legislation) in place of the amount of the gift mentioned above, the deemed fair market value of the property.
Note
For gifts in kind, the eligible amount of the gift cannot exceed the deemed fair market value of the item. An appraisal is recommended for items valued at $1,000 or more.
A registered charity cannot issue receipts for the following:
• for contributions of services provided to the charity (services do not qualify as gifts);
• on behalf of another organization or charity;
• in a name other than the name of the true donor.
References
• CSP-R02, Receipts - Sanctions - Revocation
• P113, Gifts and Income Tax
• Income Tax - Technical News No. 26
• Sample receipts

When should a Canadian registered charity issue a receipt for a gift?

As there is no requirement for registered charities to issue receipts at all, there is no requirement in terms of when receipts would be issued but for the average donor it is helpful to issue them by the end of February so that donors can use the receipt for their tax filing.  Here is a note from CRA:

“When should a charity issue a receipt?
There is no requirement in the Income Tax Act for a registered charity to issue an official donation receipt or that it issue a receipt within a certain timeframe.
The Canada Revenue Agency (CRA) suggests that registered charities issue receipts by February 28 of the calendar year that follows the year of the donation. This allows individual taxpayers to claim their donations on their annual income tax returns.
A registered charity may issue receipts periodically through the year or, for cash donations, issue one cumulative receipt for the year.
A separate receipt must be issued for each gift in kind (non-cash) donation.”

What are the mandatory fields that must be on a Canadian charity official donation receipt?

A regulation to the Income Tax Act (Canada) sets out exactly what has to be included in an official donation receipt issued by a Canadian registered charity.  Here is the list:

http://www.cra-arc.gc.ca/chrts-gvng/chrts/prtng/rcpts/whtnf-eng.html

“What information must appear on an official donation receipt?

All official donation receipts for income tax purposes must contain the following:
• a statement that it is an official receipt for income tax purposes;
• name and address of the charity as on file with the Canada Revenue Agency;
• charity’s registration number;
• serial number of the receipt;
• place or locality where the receipt was issued;
• day or year donation was received;
• day on which the receipt was issued if it differs from the day of donation;
• full name, including middle initial, and address of the donor;
• amount of the gift;
• (under proposed legislation) value and description of any advantage received by the donor;
• (under proposed legislation) eligible amount of the gift;
• signature of an individual authorized by the charity to acknowledge donations; and
• name and Web site address of the Canada Revenue Agency - http://www.cra.gc.ca/charities.
For non-cash gifts (gifts in kind), these additional elements:
• day on which the donation was received (if not already indicated);
• brief description of the property transferred to the charity;
• name and address of the appraiser (if property was appraised); and
• (under proposed legislation) deemed fair market value of the property in place of amount of gift above.
For examples of receipts, see Sample receipts.
Related topics
• Registration number
References
• CPC-010, Name on Official Donation Receipt
• CPC-015, Address on Official Donation Receipt
• RC4414, Registered Charities: What’s New? - Important Changes to the Law Affecting Registered Charities”

Practically speaking if you want to see what an official donation receipt looks like check out the sample official donation receipts CRA http://www.cra-arc.gc.ca/chrts-gvng/chrts/pbs/rcpts-eng.html

CRA’s sample official donation receipts for Canadian registered charities

If you are a Canadian registered charity and you want to issue “official donation receipts” (tax receipts) then you should look at the sample official donation receipts provided by the Charities Directorate of CRA.  They provide 4 samples depending on whether it is a cash or non-cash gift and whether there is an advantage or not.  However most charities will be mainly using the first type of receipt - cash with no advantage.

Here is the link to the sample official donation receipts
http://www.cra-arc.gc.ca/chrts-gvng/chrts/pbs/rcpts-eng.html

Does a Canadian registered charity have to issue official donation receipts for gifts it receives?

NO.  See CRA note below for more information.

http://www.cra-arc.gc.ca/chrts-gvng/chrts/prtng/rcpts/rqss-eng.html
Does a registered charity have to issue official donation receipts for gifts it receives?
• No.  Receipting carries with it a certain administrative burden, and receipted donations increase a registered charity’s spending obligation. Therefore, registered charities may choose to issue receipts according to certain criteria, or they may choose not to issue receipts at all.
• Some registered charities set minimum donation thresholds for receipting. Others do not provide receipts during certain fundraising events.
• Remember that donors cannot claim a charitable tax credit or deduction unless they are issued an official donation receipt. Therefore, registered charities are strongly advised to make potential donors aware of any circumstances in which a receipt will not be issued.
Related topics
• What is a gift?
References
• CSP-R02, Receipt