Case Law is Clear: Receipting Requirements are Mandatory
By Joel Secter
We have written about the importance of proper donation receipting before. However, a recent Tax Court of Canada case highlights the need for registered charities to issue official donation receipts that meet all of the mandatory receipting requirements.
In Emily Sowah and Her Majesty the Queen, the Appellant claimed she made cash donations of $10,252 to her church, the Jesus Healing Centre. The Appellant’s husband, Mr. Twumasi, was an accountant and responsible for doing his wife’s income tax returns. In court, Mr. Twumasi acted as the Appellant’s agent and also testified.
According to Mr. Twumasi, the Appellant would withdraw cash from the ATM on a weekly basis to cover their household expenses and charitable donations. The couple would go to church on Sunday where, apparently, the Appellant would contribute $100 or more in cash each time by placing it into an envelope and depositing it in the offertory dish that was passed around. The money was to be used for the construction of a new building. The Minister denied the Appellant the cash donations and she appealed.
At trial, there were two issues: was there a gift and did the receipts comply with the Income Tax Act (the “Act”). Section 118.1 of the Act is quite clear that in order for qualified charities to provide a tax credit for donations, two things are essential:
a) there must be a gift to charity, and
b) a receipt for the gift must contain the prescribed information.
The prescribed information can be found in Regulation 3501(1) of the Income Tax Regulations (the “Regulations”), which provides that every official receipt issued by a registered organization must contain a statement that it is an official receipt for income tax purposes and show clearly, in such a manner that it cannot readily be altered, the following information:
a) the name and address in Canada of the organization as recorded with the Minister;
b) the registration number assigned by the Minister to the organization;
c) the serial number of the receipt;
d) the place or locality where the receipt was issued;
e) where the gift is a cash gift, the date on which or the year during which the gift was received;
(e.1) where the gift is of property other than cash
(i) the date on which the gift was received,
(ii) a brief description of the property, and
(iii) the name and address of the appraiser of the property if an appraisal is done;
f) the date on which the receipt was issued;
g) the name and address of the donor including, in the case of an individual, the individual’s first name and initial;
h) the amount that is
(i) the amount of a cash gift, or
(ii) if the gift is of property other than cash, the amount that is the fair market value of the property at the time that the gift is made;
(h.1) a description of the advantage, if any, in respect of the gift and the amount of that advantage;
(h.2) the eligible amount of the gift;
i) the signature, as provided in subsection (2) or (3), of a responsible individual who has been authorized by the organization to acknowledge gifts; and
j) the name and Internet website of the Canada Revenue Agency.
In the case at bar, the court found that the Appellant failed to meet both the requirements of the Act and the Regulations.
With respect to the receipt itself, there were several failings: no specific date was given; no locality of where the receipt was issued was shown; and there was no statement that it was an official receipt for income tax purposes. Justice Miller wrote, “case law is clear that these requirements are mandatory and are to be strictly adhered to.” The court concluded that the appeal could be dismissed on the basis that the receipts did not contain all of the prescribed information.
Furthermore, the court concluded that the Appellant had not proven that a donation had been made; the Appellant provided no corroboration for the cash donations, such as bank records or ATM receipts. There was also no evidence of any plans for the church to construct a new building. The fact that the Appellant’s husband was still claiming a disability tax credit for an injury that occurred in 1993, even though he no longer had any problems, also raised doubts about his credibility.
As we begin 2014, we would like to encourage our readers to ensure the requirements of the Act and Regulations are met when issuing charitable tax receipts.