It is very common that volunteers and board members of charities lay out funds in support of the organization’s activities. It may be to pay for gas while driving clients of the charity to travel and accommodation expenses to attend board meetings away from one’s own city.
In such cases it is acceptable for the charity to reimburse the expenses. But in many situations, the volunteer would be happy simply to get a charitable receipt. The problem is that a charity cannot issue a charitable receipt for the expenses incurred.
But there is an alternative approach which gets the same result, an approach sanctions by the Charities Directorate.
This is dealt with in CPC-012.
It starts off by stating that a charity cannot simply issue an official donation receipt to a volunteer for the amount of the expenses, in lieu of reimbursing the expenses.. But a charity can reimburse a volunteer for the expenses incurred on behalf of the charity and later accept the return of the payment as a gift, provided that the amount is returned voluntarily.
The parties are encouraged to proceed by way of an exchange of cheques, that is, the charity issues a cheque to the volunteer covering the costs incurred, and the volunteer then writes a cheque to the charity for an equivalent or lesser amount. By using the cheque-exchange method, a charity will have proper financial records justifying the receipt it issues to the volunteer and the volunteer can document that he or she has transferred property to the charity.
“However, provided the volunteer has a right to reimbursement from the registered charity for the expenses incurred, the charity may treat the right to reimbursement as a gift in kind and issue a receipt for income tax purposes.
When a registered charity wants to issue a receipt for income tax purposes to a volunteer in lieu of reimbursement, it should have a written direction from the volunteer. The written direction should confirm the right to reimbursement and direct the registered charity to issue a receipt rather than provide reimbursement. The following is an example of acceptable wording for such a direction:
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.
If the charity issues a receipt for income tax purposes upon the transfer of a right to reimbursement, it should report the amount of the gift on Form T3010, Registered Charity Information Return both as revenue, and as an expenditure.”
The CRA also suggests (and we concur) that a charity should also have a policy in place on reimbursing volunteers. The policy should specify both the type of expenditures the charity is prepared to repay (for example, for materials purchased for the use on a charitable activity or for reasonable accommodation if the volunteer is travelling on the charity’s business), and appropriate procedures to document the volunteers’ payments, such as submitting credit-card slips. Such a policy enables the charity to demonstrate it is controlling the use of its resources for charitable purposes.
For those with experience in operating a charity, these rules are well understood.
But a decision of the Tax Court of Canada in 2016 shows that there are limits as to what can be done. The case was Duguay v. The Queen.
Duguay, the taxpayer was retired. On his 2013 tax return, he claimed amount of $10,000 as charitable donation made to “Manoir”, registered charity since 1978. Manoir provided housing for low-income people and seniors’ residence. During taxation year in question, Duguay purchased construction materials totalling $20,153, used exclusively for renovations of his own dwelling. Charity issued two cheques in amount of $10,000 each in name of Duguay as reimbursement for construction materials.That same day, he endorsed one cheque in the amount of $10,000 and handed it to charity, which subsequently issued charity receipt in amount of $10,000.
The Minister disallowed deduction of $10,000 as charitable donation for purposes of calculating non-refundable tax credits. Duguay testified at the hearing and explained that he reached agreement with the former administration of charity to effect that charity would reimburse him 50 percent of cost of work and would issue him charity receipt for other 50 percent of work to reflect value of materials that taxpayer would leave behind. Provisions in his lease allowed him to renovate housing at his own expense. The charity’s current policy was to pay full renovation costs of around $10,000 per unit . Duguay appealed the CRA assessment.
The appeal was dismissed.
In both civil law and common law, the concept of donative intent must clearly exist for legal act to qualify as donation. Here, taxpayer had, at time of donation, the right to immediately enjoy renovations to his home and this advantage was granted through donation made to charity. The occupation of renovated housing was not granted independently of donation. The occupation of renovated housing and donation was inextricably linked by prior arrangement agreed verbally before renovation. Duguay conceded at hearing that rent paid to occupy dwelling was less than market value of rent required to occupy this type of housing Moreover, there was evidence that rent paid by taxpayer was even lower than rent paid by previous tenant before renovations were completed. It was irrelevant whether charity received or would receive gift in future when taxpayer would leave dwelling.
The court made these observations which are of general application.
“However, the Act does contain provisions aimed at reducing the amount of a gift by the amount of the advantage received by the donor. The provisions in question define the eligible amount of a gift and the amount of the advantage in respect of a gift. Subsections 248(31) and 248(32) of the Act are worded as follows:
Eligible amount of gift or monetary contribution
(31) The eligible amount of a gift or monetary contribution is the amount by which the fair market value of the property that is the subject of the gift or monetary contribution exceeds the amount of the advantage, if any, in respect of the gift or monetary contribution.
Amount of advantage
(32) The amount of the advantage in respect of a gift or monetary contribution by a taxpayer is the total of
(a) the total of all amounts, other than an amount referred to in paragraph (b), each of which is the value, at the time the gift or monetary contribution is made, of any property, service, compensation, use or other benefit that the taxpayer, or a person or partnership who does not deal at arm’s length with the taxpayer, has received, obtained or enjoyed, or is entitled, either immediately or in the future and either absolutely or contingently, to receive, obtain, or enjoy
(i) that is consideration for the gift or monetary contribution,
(ii) that is in gratitude for the gift or monetary contribution, or
(iii) that is in any other way related to the gift or monetary contribution, and
(b) the limited-recourse debt, determined under subsection 143.2(6.1), in respect of the gift or monetary contribution at the time the gift or monetary contribution is made.
The amount of the advantage in respect of a gift includes the total of the amounts, each of which is the value, at the time the gift was made, of any property that the taxpayer enjoyed, or is entitled, either immediately or in the future and either absolutely or contingently, to enjoy, and which is consideration for the gift or monetary contribution, in gratitude for the gift or monetary contribution, or in any other way related to the gift or monetary contribution.”
So when considering whether a receipt can be issued, it is critical to determine whether the propose of the expenditure was to advance the operations of the charity or whether there is a substantive benefit to the individual which is quantifiable.
For example, we noted that reimbursing a Board member for travel expenses to a meeting is acceptable. But reimbursing him or her for a spouse’s expenses to accompany is not.
Properly handled, reimbursement is an encouragement to volunteers but the organization must be careful not to “push the envelope” too far.
 2016 TCC 168
 The retirement home he and his wife were living in.
 Manoir was situate in Quebec.