CRA has recently issued several policy guidances which update and replace previous CRA policy statements on various topics. Charities should ensure that they are familiar with the contents of these guidances, as they constitute the most current statements of CRA’s position on each issue. The updated guidances are as follows:
CG-005 Designated Stock Exchange
This guidance sets out the stock exchanges in Canada that have been identified by the Department of Finance as ‘designated stock exchanges’ pursuant to the Income Tax Act, and provides a link to the full listing of designated stock exchanges on Finance’s website. Designated stock exchanges (formerly called ‘prescribed stock exchanges’) are significant in relation to the non-qualified investment (NQI) rules (summarized below) affecting investments by private foundations. Shares held by a private foundation that would otherwise constitute NQIs will not be subject to the section 189 tax if traded on a designated exchange.
CG-006 Non-qualified Investments
This guidance updates CRA’s previous summary of the rules in the Act relating to non-qualified investments. Essentially, these rules apply to the issuers of securities (debts, shares or rights to acquire such securities) when these securities held by a private foundation that does not deal at arm’s length with the issuer. Where this is so, the issuer will be subject a special tax under section 189, which is equal to the amount by which the interest or dividends paid by the issuer on the securities is less than certain rates prescribed in the Regulations. The tax is designed to ensure that private foundations are not used as a source of cheap capital by persons related to the foundation, by requiring that the issuer provide market rates of return on these investments.
CG-007 Donation of Gift Certificates or Gift Cards
This guidance summarizes and updates CRA’s policies on when the donation of a gift certificate (or gift card) will be eligible to receive an official donation receipt. The guidance confirms that in order to qualify as a gift, the donation must involve a transfer of property. A gift certificate constitutes property only where it is issued for consideration and therefore constitutes an enforceable right in the hands of the holder to goods or services supplied by the issuer in an amount equal to the dollar value of the certificate. The result of this is that charities may only issue receipts for the eligible amount of donations of gift certificates in the following circumstances:
when the holder of a gift certificate that has been issued for consideration (the terms of which permit its assignment) donates the gift certificate to a registered charity; when the issuer of a gift certificate donates it to a charity for no consideration, the registered charity can only issue an official receipt at the time the charity receives property when is redeems the gift certificate; and when the issuer of a gift certificate gives it to a charity for partial consideration, (in which case the charity may issue an official receipt to the donor for the eligible amount). Charities should ensure that their policies and procedures surrounding the issuing of receipts reflect these rules.
CG-008 Confidential Information
This guidance notes the exceptions in the Act applicable to registered charities to the general rule that taxpayer information must be kept confidential by CRA. The names, registration status, and public portions of the T3010 Information Returns of registered charities are publicly available and searchable through the CRA website. The public can also request the following from CRA:
- the charity’s governing documents and names of all past and present directors or trustees;
- any documents filed by a charity with CRA when applying for registration;
- any financial statements filed with a T3010 Information Return;
- a copy of the charity’s notice of registration, including any warnings or conditions contained in the notice;
- when a charity has been revoked or annulled, a copy of all letters sent by the Minister of National Revenue to the charity relating to the revocation or annulment;
- a copy of the entirety of, or any part of, any letter or notice by the Minister to the charity relating to a suspension or an assessment of tax or penalty (other than the amount of a revocation tax); and
- any application by the charity, and information filed in support of the application, for re-designation as a charitable organization, private foundation, or public foundation; for designation as associated charities; and, for the permission to accumulate property.
Charities should be mindful that each of the above documents is publicly available.
CG-010 Qualified Donees
This guidance sets out the entities that meet the definition of ‘qualified donee’ under the Act. Charities must remember that any gift of funds or resources to a non-qualified donee is potentially grounds for revocation.