Improper receipting

The ability to issue official donation receipts is a tremendous tax privilege granted to registered charities and it comes with great responsibility.

One of the Charities Directorate’s main compliance functions is to ensure that registered charities issue tax receipts in accordance with the Income Tax Act (the Act). In recent years, CRA audits of charities have uncovered many cases of improper receipting. Serious cases have led to revocations of charitable status. A charity must be aware of its responsibilities when issuing official donation receipts so that it does not unwittingly find itself in a situation of non-compliance. A charity can avoid problems for itself and its donors by only issuing proper receipts.

Improper receipting occurs when a registered charity issues a receipt in a manner that contravenes the rules of the Act. This involves, for example:

  • issuing a receipt with inaccurate or missing information;
  • issuing a receipt for a transaction that does not qualify as a gift;
  • issuing a receipt on behalf of another organization; or
  • issuing a receipt for an inflated amount.
  • Inaccurate or missing information

A charity must ensure that it issues donation receipts that meet the Act’s regulations about the required contents of an official donation receipt. Charities often issue receipts with inaccurate or missing information. For example, a charity may improperly issue a receipt without the address of the donor. Charities must also be aware of the different requirements for receipts issued for cash gifts and non-cash gifts (gifts-in-kind). For a complete list of these requirements see, What information must appear on an official donation receipt? and sample official donation receipts.

Transactions that do not qualify as gifts

To avoid improper receipting, a charity must know when it can and cannot issue a donation receipt. A donation receipt can be issued only if there has been a voluntary transfer of property by way of gift. Property includes tangible items such as cash, stocks, computers, and sports equipment.

Charities often make mistakes regarding the type of gifts that are receiptable. For example, a charity cannot issue an official donation receipt for a “gift” of service. Gifts of service (donated time, skills, and effort) provided to a charity are not property, and therefore do not qualify as gifts for the purposes of issuing official donation receipts. For more information see, What is a gift?

Receipting on behalf of another organization

A charity is responsible for all receipts issued under its name and registration number. It must account for the corresponding donations on its annual information return and in its books and records. Under no circumstances should a registered charity issue donation receipts on behalf of another organization or lend its registration number to another organization for receipting purposes.

Inflated amounts

Issuing a donation receipt with a dollar amount that is far in excess of what the charity has actually received as a gift can be a deliberate attempt by a charity to abuse the tax system. However, issuing a receipt for an inflated amount is not always deliberate. For example, establishing the fair market value (FMV) of a non-cash gift is frequently problematic for charities. Charities should not rely solely on the donor to give them a value for the item being receipted. The amount on the receipt should be the FMV, and if the value cannot be determined, a receipt cannot be issued. For more on FMV, see determining fair market value.

A charity’s administrators can learn how to avoid improper receipting by referring to the Charities and Giving Web pages. The pages contain entire sections devoted to receiving gifts and issuing receipts. Anyone involved in an administrative role with a charity, and responsible for issuing receipts, should familiarize themselves with the information on these pages.

~ www.cra-arc.gc.ca