CRA has prominently posted the following warning on its website:
Under no circumstances should a registered charity lend its registration number to another organization for receipting purposes. A registered charity is responsible for all tax receipts issued under its name and number and must account for the corresponding donations on its annual information return. A charity that lends its registration number risks losing its charitable registration.
Why is CRA reminding charities of this obvious point? First of all some small “naive” charities have been “duped” by some abusive charity tax schemes into “lending” their tax receipts - small little charity issues 300 million dollars in tax receipts in one year!
Another problem is not nearly as evil. Some well-meaning registered charities, wanting to help another charitable organization that is doing good work but is not registered, may “help” that organization by issuing receipts for example for a fundraiser run by the non-registered organization and then flow those funds back to the non-registered organization. In some cases, the registered charity takes no percentage and in others they take a small percentage. Ultimately, such behaviour is not beneficial to either organization and should be immediately stopped. The registered charity if it wants to help another charity with fundraising should help them obtain their own charitable registration. Unfortunately, if CRA discovers that this practice is going on the registered charity can lose its status (which is good for neither party) and the unregistered group will have a black mark against it when it tries to apply for registration.
As well, depending on how CRA views the conduct the charity if it is “deliberately false information” the charity is liable to a penalty equal to 125% of the eligible amount stated on the receipt. That could really hurt the registered charity. Suspension and revocation are also likely scenarios in certain circumstances.
There are legitimate and legal structured arrangements between Canadian charities (qualified donees) and non-registered charities (non-qualified donees) but this is not one of them. If you are in this situation, it is prudent to obtain legal advice and to fix the problem, rather than spending the next year thinking about fixing the problem.
GlobalPhilanthropy.ca was created by Mark Blumberg, a lawyer at Blumberg Segal LLP in Toronto, Ontario, Canada. If you require legal services with respect to non-profit (tax exempt) organizations or charities in Canada he can be contacted at or at 416-361-1982 x. 237. To find out more about legal services that Blumbergs provides to Canadian charities and non-profits please visit the Blumbergs’ Non-Profit and Charities page at http://www.blumbergs.ca/non_profit.php or http://www.globalphilanthropy.ca
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Mark Blumberg is a partner at the law firm of Blumberg Segal LLP in Toronto and works almost exclusively in the areas of non-profit and charity law.