The COVID-19 crisis is affecting charities in numerous ways.  In this short note, we will discuss cancelling events and refunding money or attempting to turn that into a potential charitable donation.   We have received a number of inquiries from clients about how to do this and here are some tentative thoughts.  Cancelling events or programs can have a huge impact on the revenue of a charity – also there are lots of sunk costs associated with cancelling an event.   Some charities would like to give people a choice of receiving a refund or instead turning the amount into a charitable donation.   Some people may be receptive to this approach and it might reduce the impact of the cancelled event or program on the charity.

If you have cancelled an event or a program (not just delayed implementation of it), and there is no other benefit accruing to the individuals,  and you would like to give such individuals the option to donate (and receive an official donation receipt) instead of receiving a refund, that could be possible.  If there is a benefit or advantage to the individuals, for example, a person signs up for the course which is cancelled but they get the materials anyway, then there may be an advantage that needs to be taken into account when issuing the official donation receipts.  If the amount of the advantage received is over 80% of the amount paid, then no official donation receipt can be issued.  If the amount of the advantage is the lesser of 10% and $75 then it may be considered de minimis by CRA.   If the value of the advantage cannot be determined, then an official donation receipt cannot be issued.

In order to be considered a gift/donation, there must be, among other things, donative intent on the part of the donor. Therefore, you would have to give people the choice to either receive a refund or make a donation. You couldn’t, for example, just tell people that their fees will be turned into donations and then issue donation receipts because that arguably would not entail donative intent on the part of the payor (not to mention could result in some disgruntled individuals some of whom may be going through financial distress for example because they have lost their job because of the Coronavirus).

It is always “cleaner” to have the funds be refunded into the hands of the individuals and then donated to the charity as a gift.  However, that may not be so practical in the circumstances, especially if it means issuing cheques and mailing them out in this time of COVID.   CRA has a guidance dealing with “Out of Pocket Expenses” (CPC-012), from which we can perhaps draw an analogy although it is admittedly a different situation.  In this guidance CRA discusses when a volunteer incurs an expense for the charity but instead of the volunteer being paid the charity issues a receipt.

In this guidance CRA recommends that the volunteer sign the following direction if the charity will issue them an official donation receipt “I _______________________ direct that the funds to which I am entitled by way of reimbursement for _______________, and would otherwise be forwarded to me by cash or cheque, be transferred to ______________ as my gift.”

For a charity dealing with a cancelled event or program perhaps one could have a written/electronic direction that says something like this: “I _______________________ direct that the funds to which I am entitled as a refund for ______________ (cancelled program or event) and would otherwise be forwarded to me by cash or cheque or _______(insert other), be transferred to ______________ [name of charity] as my gift.

Any charity should also carefully consider how this would be treated from an accounting and T3010 perspective.

CRA has not indicated anything special that we are aware of in dealing with these refunds as part of the COVID crisis.

But the short answer is that it can be done, as long as it is done properly.


[UPDATE – we have also provided another blog on What to do if you have cancelled an event due to COVID-19 and the charity has already issued a tax receipt?]