By: Arthur Drache
Towards the end of last year the CRA “published” an on-line video dealing with the question of “who the true donor of a gift is”. We found is moderately interesting but nowhere nearly comprehensive if one were to judge by the questions we often get.
We regularly are asked questions by charities about their legal obligations when issuing receipts. By this we do not mean the statutory requirements such as the retention of duplicates, rules about signing and data which must be on the receipt. More often, we are asked about situations where the officials of a charity are worried about whether they are being asked to be a part of some sort of tax evasion activity. What makes the situations particularly difficult is that in a lot of cases the issue relates to the onus on the charity to make inquiries.
Generally speaking, the fundamental risk associated with the issuing of receipts in questionable circumstances lies in the fact that Revenue Canada has the power to deregister a charity for issuing improper receipts. In the vast majority of cases where such receipts may have been issued, no drastic action is taken against the charity unless Revenue is almost certain that the charity was actively conniving in the evasion. An example of this occurred a few years ago when several Quebec charities were deregistered when it was discovered that they were actively involved, knowingly, in issuing tax receipts for donations of art work which were grotesquely over-valued.
Consider this not unusual situation:
A donor makes a pledge and offers a cheque which is written on the account of his company. He asks for a receipt personally. Now there is no doubt that it is proper to issue a receipt as there has been a valid gift. But to whom should the receipt be made out? In our view, the receipt can properly be made out to the individual if the charity is informed about the internal treatment of the payment on the donor’s company books. It may well be that the internal books of the company have shown the cheque to be a “draw” by the individual, and thus taxable to him. Thus, a personal receipt is proper. But in our view it is not the obligation of the charity to try to dig into the corporate books. Some charities, we would note, make the receipt to the donor but use the company’s name (e.g., c/o the XYZ company) as a sort of alert. We don’t think this procedure is necessary, but it is acceptable if it makes the issuer of the receipt more comfortable.
The CRA video has this to say which confirms our view.
“Whenever a donor asks you to issue a donation receipt in another person’s name, you should ask for a written declaration naming that other person as the true donor. Without a document saying who the true donor is, you cannot issue a donation receipt.”
The aforementioned CRA video says this about a different situation.
“A corporation may collect donations from its employees and issue a cheque to your charity for the total amount it collected. Although the corporation’s name is on the cheque, the true donors are the employees who donated the funds. So, you cannot issue the corporation a donation receipt.
But if the same corporation gives you a list of the employees who donated and the amount of each gift, you can issue each employee a donation receipt for the amount they donated.
The corporation will need to give you the full names and addresses of the employees for the official donation receipts.”
But what about the increasingly common situation of a commercial enterprise soliciting funds (often at a check-out desk) for a particular charity? Except in the most unusual situations the names of he donors are not collected. The company then turns the money over to the charity. We assume (but don’t know) that the charity will not issue a receipt because it doesn’t know who the “true donors” are. But without an audit by the CRA, we suspect that in many cases receipts are issued and a windfall comes to the commercial organization.
These are just a few issues which a charity has to consider when issuing receipts to avoid threats from the CRA auditors.