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Being able to issue donation receipts is one of the most significant benefits of being a registered charity. Donation receipts can provide donors with an incentive to make charitable donations, as they can be used to reduce the amount of taxes owed by the donor (individuals) or reduce the donor’s taxable income (corporations). As donation receipts provide tax advantages, the Canada Revenue Agency is concerned that donation receipts will be subject to abuse and people will claim tax credits for donations they did not make or for a greater value than what was actually gifted. Accordingly, in order to assist in verifying their legitimacy, donation receipts must include certain information.
If a charity improperly issues receipts, not only can the charity be subject to penalties, loss of receipting privileges and, in extreme cases, loss of charitable registration, but its donors may not be able to use their donation receipts. Madamidola v The Queen, 2017 TCC 245 [Madamidola], is a recent decision of the Tax Court of Canada (the “Court”) that is a reminder of how important it is for charities to make sure they are preparing receipts correctly.
In 2004 and 2005, Mr. Madamidola made a number of donations to a registered charity and was provided with two receipts in return. The Minister of National Revenue reassessed Mr. Madamidola, denying the tax credits that he claimed for the charitable donations. The 2004 receipt said that $4,058 was received by the charity for January to December 2004. The 2005 receipt stated that the charity received an in-kind donation of chairs and tables estimated at $6,458 and a cash donation of $2,000 for January to December 2005.
Mr. Madamidola testified that the 2004 donations were made up of $4,000 in cash and a small balance representing food donations. The 2005 donations were made up of $6,458 for tables and three dozen folding chairs and a balance of $2,000 in cash.
Where an individual taxpayer has been reassessed, in order to claim the tax credit for a charitable donation, the taxpayer must file with the Minister a receipt for the gift that contains certain “prescribed information” as set out in section 3501(1) of the regulations to the Income Tax Act (Canada). In Madamidola, the Court noted that there has been a considerable amount of case law on receipts and that these cases stipulate the requirements for receipts must be followed diligently. Any failure to meet those requirements will invalidated a receipt.
The Court found that the receipts issued to Mr. Madamidola had deficiencies, including:
- the address of the charity listed was not the address recorded with the Minister;
- the place or locality where the receipt was issued was not clearly stated;
- for the gifts in kind, the date on which the gifts were received was not stated (i.e., the receipts stated only that they had been made within the relevant years); and
- Mr. Madamidola’s address was not included.
For the gifts in kind, the Court also raised concerns that there was no evidence on who determined their value or how their value was determined. The receipt for a gift in-kind is based on the fair market value of the item gifted. This is best established by appraisal reports, but can also be established with other evidence, such as purchase receipts. The Canada Revenue Agency’s guidance on gifts in kind states that, if the gift is expected to have a value of less than $1,000, a member of the charity or another individual with sufficient knowledge of the property that is being gifted can determine the value. If the gift is expected to have a value of over $1,000, then a professional appraisal should be conducted by someone who is not connected to the charity or the donor.
As a result of the deficiencies, the Court dismissed Mr. Madamidola’s appeal of the Minister’s denial of the tax credits claimed.
This case is a reminder that charities need to be mindful of the rules when they issue donation receipts. Donors rely on the receipts in order to claim tax credits/deductions. If the Minister denies a donor’s claim for a tax credit/deduction on the basis that the charity did not include all of the required information, this will reflect poorly on the charity and could harm its relationships with donors.
The Canada Revenue Agency’s website contains useful information on how to issue receipts. We recommend that charities familiarize themselves with these rules, confirm that their current receipting practices are in compliance, and put in place internal policies on how to issue receipts.
If you have questions about preparing donation receipts, Miller Thomson’s Social Impact Group is available to assist.