CHECK THOSE RECEIPTS
By C. Yvonne Chenier, Q.C.
In Alberta, and potentially in some of the other provinces that have regulated fundraising, there may already be confusion about receipts issued by entities referred to as “charitable organizations”. Now, potentially because of the new super credit that was announced for first time donors in the Federal Budget delivered on March 21st, 2013, there will be more issues for Canadians to consider at tax time. Inadvertently this may create yet another due diligence burden for the charitable sector over the next few taxation years, until the new Federal First Donors Tax Credit expires.
Generally at tax time those in the same household should gather all of their income tax slips, donation receipts and other important information to prepare their tax returns and make sure that they get the best refund possible if they have already made their tax payments through payroll deductions, or pay the least amount of tax if they are about to write a cheque. T4 slips and T5 slips and the like all look very proper as they are on official looking forms and often come computer generated in the mail to taxpayers. Receipts for charitable donations are a different matter. Even though there are specific requirements that have been set down by CRA in a guidance entitled “Issuing complete and accurate donation receipts”, and a checklist and a policy statement entitled “Penalties for False Information on Donation Receipts”, these missives apply only to charities that are registered under the Income Tax Act and regulated by the Canada Revenue Agency, Charities Directorate.
However, in provinces that have regulated fundraising there may be a further complication in that organizations that solicit donations for charitable purposes, whether or not they are registered federally, also issue receipts for charitable donations that they receive (see for example Charitable Fund-raising Act, RSA 2000, c C-9, s.10(1) ). The Charitable Fundraising Act does not specify the form of the receipt or what information is mandatory to be in those receipts. Regulation 3501 of the Income Tax Act, however, clearly indicates the information that an official receipt must contain for a registered charity issuing official receipts for donations that legally qualify as gifts under the Income Tax Act. Even though Income Tax Regulation 3501 contains very strict requirements, it is often the case that many small charities have difficulty providing a receipt that looks official.
It is not always the case that the charitable organization following the Charitable Fundraising Act is also a registered charity under the Income Tax Act. Often this is not known by the taxpayer. So it is possible that some receipts issued under the Charitable Fundraising Act are not qualified as receipts for the purposes of the Income Tax Act. It is unknown whether or how many of these latter kind of receipts slip through and are used as tax credit requests. This may be an innocent mistake by the tax preparer in many cases; however it is still an issue. It would be interesting to know if those holding themselves out as tax preparers know the difference.
Now along comes Budget 2013 with its new First Time Donors Credit. The FTDC will increase the value of the federal Charitable Donations Tax Credit by 25 percentage points if neither the taxpayer nor their spouse has claimed the credit since 2007. The FTDC will apply on up to $1,000 in cash donations claimed in respect of any one taxation year from 2013 to 2017. The Federal credit on the first $200 of donations used to be $30 (15%), now it will be $80 (40%); and for the amount between $200 and $1000 the amount used to be $282 (29%) and now will be $ 432 (54%). That adds up to a potential one time rebate of $200 per first item post 2007 donor taxpayer and for some it will be cash in the bank if they can plan their family’s tax filings accordingly. This super credit will only be available in the first year a donor or spouse (including common law) claim it. The new mantra amongst parents in the next few years may be telling their children to ask their potential common law spouse if they have taken advantage of this super tax credit or not, and plan accordingly. Post-secondary students should be aware of a potential trap in that some schools automatically collect small donations as part of the fees students pay that are subsequently reported on the T2202A. If claimed since 2007 this may ruin the student’s chances for the full super credit amount. There may be other similar situations where small charitable donations have been inadvertently made. Planning when to claim or not claim a charitable donation will be a consideration.
Smart taxpayers will see to it that their family unit takes advantage of this extra money that the government will give back in the next few years. Granted, it will be a windfall for the charitable sector if these donations are in fact made en masse. But at the same time it will be a windfall for smart people who plan their family’s tax accordingly. There would be nothing to stop one taxpayer from giving funds to another for the purposes of making a gift to charity to take advantage of the super tax credit.
Charities that are receiving funds and potentially receiving requests to have donations issued in certain names should be very careful about who they issue receipts to. The Income Tax Act Regulation 3501 clearly says:
“(1) Every official receipt issued by a registered organization shall contain a statement that it is an official receipt for income tax purposes and shall show clearly in such a manner that it cannot readily be altered…(g) the name and address of the donor including, in the case of an individual, his first name and initial.”
It is also the CRA Charity Directorate’s policy as found on their website that “a registered charity cannot issue receipts in a name other than the name of the true donor”. However, the CRA Charities Directorate has a policy commentary, dating back to 1994, entitled “Issuing a Receipt in a Name Other than the Donor’s” which answers the question as far as CRA Charity Directorate policy is concerned as to whether receipts can be issued in a name other than the donor. The commentary makes four points including the following:
· It is a question of fact whether property donated from one individual to a registered charity is the property of that individual and/or another. An individual can act as trustee or agent for another in making a gift to a registered charity.
· In other circumstances, where the provider of the gift asks the charity to issue an official donation receipt in another name and there is no obvious indication as to the true donor, the registered charity must be reasonably sure that the name it records on the receipt is that of the true donor. In these circumstances, the charity should request a written declaration as to the identity of the true donor from the party providing the donation.
Taking all these points into consideration it will be interesting to see if the receipting of charitable donations will be the subject of further policy over the next few years as the super tax credit will result in more cash being released to Canadian taxpayers, more planning is done by taxpayers to take advantage and receipts are more carefully scrutinized.