Donation of Space Yields no Charitable Receipt
By Arthur Drache, C.M. Q.C.
While we have no firm data on the point, out experience suggests that there are literally thousands of small registered charities which operate out of private homes. Typically one or more of the founders handles much of the mechanics of operating the organization from home using his or her own computer, telephone and so forth. Usually meetings are also held in the house.
Recent tax case involved such a situation where somebody got the bright idea that the charity should issue a receipt for the value of the home space devoted to its operations.
Ward Carson appealed the CRA denial of his claim for a charitable donation of $3,120 in 2009. This amount represented Mr. Carson’s estimate of the fair market value of the use by Peaceful Schools International Society of two rooms in his home over a two year period. Mr. Carson’s wife was the President of Peaceful Schools, a registered charity. She and Mr. Carson married in 2005 although since 2001 she had been using the two rooms in her property for the operation of Peaceful Schools. After she and Mr. Carson married, and he moved into that residence, the rooms continued to be so used, one room for an office for Peaceful Schools and the other for storing products and supplies of Peaceful Schools. Mr. Carson’s wife remained the registered owner of the matrimonial home in Granville Ferry.
On March 31, 2009, Mr. Carson was issued a receipt for a donation of $1,950 to Peaceful Schools. On December 31, 2009, he was issued a second receipt for a donation of $1,170 to Peaceful Schools. Mr. Carson stated the receipts indicated the amounts were “in-kind – rent”, though the receipts were not produced at trial. He calculated the value of the two rooms used by Peaceful Schools to be $130 a month, though acknowledged there was no lease nor rental agreement. He went on to say that had there been a lease, the monthly expenses for the two rooms would have exceeded the income. He did not report any income.
The simple issue was whether the use by Peaceful Schools of two rooms in Mr. Carson’s and his wife’s home, valued at $130 a month, represents a charitable gift from Mr. Carson to Peaceful Schools eligible for tax credits pursuant to subsection 118.1(3) of the Income Tax Act .
Mr..Justice Cam Miller rejected the appeal. The simple reason was that there mere fact of allowing the charity to use the space was not a transfer of property which would be the prerequisite to qualifying as a receiptable gift. There was no formal lease arrangement and thus from a legal point of view, the charity had no right to use the property.just an arrangement which could be terminated at any time.
But had Carson done a lease arrangement with the charity, things might be different.
Assuming the rent in question was for fair market value, signing the lease created a property interest. Carson could then receive a monthly cheque and perhaps donate the same amount back, getting a valid receipt. Or the lease might set the value and indicate that the payment would be satisfied by issuing a valid charitable receipt for the value.
In either case, Carson would then have to bring into his income the amount of the rent “received”. At first blush, this seem economically futile given that he adds $130 a month in income and gets a receipt equal to $130 a month.
But if Carson’s tax bracket is lower than the top one, the tax credit would be more valuable that the tax cost of the income inclusion. But in addition, Carson could deduct certain costs in respect of the rental income such as a pro-rate amount of electricity and other utilities, property taxes, mortgage interest and so forth in respect of the space under lease. (These are the same deductions a business person might deduct for a home office or a residential landlord might deduct from rental income.)
While the numbers might vary based on Carson’s income and other factors, the outcome might be highly satisfactory.if all the correct tax planning steps are taken.
The case serves to show that often the “correct” result can be achieved with careful planning but it is not enough to simply try to argue that the informal arrangement is the same as a formal arrangement.especially if you are dealing with the CRA and a Tax Court Judge.
 Ward Carson v. The Queen 2013 TCC 353
 This is true in all provinces once annual giving exceeds $200.