Historically, registered charities have been subject to a stricter regulatory regime than municipalities in respect of donations. The 2011 Federal Budget proposed changes to the Income Tax Act that will increase the regulation of municipalities in respect of donations. Municipalities will need to comply with these new rules in order to ensure that their donors can receive a charitable tax deduction or credit from their donation to the municipality.
Under the Income Tax Act, donations to “qualified donees” are eligible for charitable tax credits on an individual’s income tax. Municipalities are currently recognized as qualified donees and will continue to be qualified donees under the proposed rules. The definition of qualified donee is proposed to be extended to include “a municipal or public body performing a function of government in Canada that has applied for registration.”
Under the proposed rules, the Minister may make available to the public the name, address, date of registration and date of revocation of any qualified donee. Currently, such a centralized list is maintained only for registered charities. The expansion of the list will help members of the public to determine which organizations may issue official donation receipts, as well as to allow registered charities to know which organizations are qualified donees for grant-making purposes.
The new rules will give the Minister the ability to revoke the qualified donee status of a municipality or a municipal or public body performing a function of government in Canada that: issues a receipt for a gift not in accordance with the Income Tax Act and its regulations, issues a receipt containing false information, fails to comply with its record keeping obligations, or fails to comply with the audit and inspection requirements. Donors to a revoked municipality will not receive a tax credit for their gifts to the municipality.
These changes will apply the later of: January 1, 2012 and the date of Royal Assent to the enacting legislation.
This article provides an overview of the tax receipting requirements. Future articles will review the records keeping requirements and audit and inspection.
The Income Tax Act already requires that donation tax receipts issued by a municipality contain specific information. However, the consequences of failing to comply now include loss of qualified donee status. The receipts must include:
- A statement that the receipt is an official receipt for Canadian income tax purposes.
- The municipality’s name and address.
- The (sequential) serial number of the receipt.
- The place or locale where the receipt was issued.
- If the donation is a cash donation or a series of cash donations, it is acceptable to simply show the year in which the cash donations were received on the receipt. This means that it is possible to receive a series of cash donations from a given donor and only issue one receipt after all of the donations have been received for the year.
- If the receipt is not issued on the exact day that the donation was received by the municipality, then the receipt must include the date on which the receipt was issued.
- The fair market value of the property at the time that the gift was made or the amount of cash donated. The amount should be expressed in Canadian dollars. In valuing property for receipting purposes, it is important to be accurate.
Fair market value is often defined as "the highest price, expressed in a dollar amount, that the property would bring, in an open and unrestricted market, between a willing buyer and a willing seller who are both knowledgeable, informed, and prudent, and who are acting independently of each other.” If the amount is under $1,000 a qualified representative of the municipality might be able to appraise it. However, if the gift is worth more than $1,000 it is usually necessary to have the property appraised by a qualified appraiser.
- For non-cash gifts, provide a brief description of the property and the name and address of appraiser of the property if an appraisal is done.
- The name and address of the donor. In the case of an individual, the donor's first name and initial must be indicated.
- The name and Internet web site of the Canada Revenue Agency (www.cra-arc.gc.ca/charities).
- The receipt must bear the signature of "a responsible individual" who has been authorized by the municipality to acknowledge donations.
- According to rules proposed in 2002, the receipt must also include a description and the amount of any advantage or benefit made to the donor in respect of the gift, as well as the “eligible amount” of the gift. The eligible amount of the gift is the value of the gift minus any advantage received in respect of the gift. For example, where a charity holds a fundraising dinner, the receipt would show the price which the donor paid to attend the dinner, the amount of the benefit to the donor (i.e. the cost of hosting the dinner) and the eligible amount (the per person amount the municipality nets from the dinner). Donors claim the eligible amount on their taxes. While these rules are not yet passed, the rules are set to be retroactive to 2002 and CRA is administering the Income Tax Act as if these rules were in force.