89% of charities issuing incorrect donation receipts – are you one of them?
In my January 14 Lunch n Learn at the Mountain Hub, I discussed the Top 3 Mistakes Charities Make. The one mis-step that can harm a charity the most is issuing incorrect donation receipts. I’d like to share the most common issues with donation receipts. Before we get into the nitty gritty, I’d like to take a step back and provide a high-level overview of the charitable program in Canada for context .
CRA’s permissible charitable activities are generally social services that are provided to the community as a whole. These are activities, that in the absence of all the wonderful, generous charities in our community, the government would be pressured to fill – education, relief of poverty, welfare of animals, etc. As a result, the government grants registered charities the ability to issue a tax receipt for gifts to charities (“gift” has a very specific definition which I’ll discuss later). This reduces the government’s tax revenue in exchange for the provision of social services in our communities. This is a significant power granted by the government to charities and should be protected accordingly.
Now for the most common issues I see in working with charities.
#1 – A charity is NEVER REQUIRED to issue a charitable donation receipt.
If you are unsure of whether a donation receipt should be issued in the circumstances then err on the side of caution and do not issue it – even if it means returning the gift. Alternatively, contact your accountant, go to the Charities Directorate website or call the Charities Directorate for guidance. In my experience, the Charities Directorate is wonderful to deal with and they are happy to provide guidance on a no-names basis (i.e., you do not have disclose the charity you are calling from to get general guidance)
#2 – The donation receipt does not include all the required elements
Sample donation receipts and a listing of what is required on every receipt can be found here – https://www.canada.ca/en/revenue-agency/services/charities-giving/charities/sample-official-donation-receipts.html
One of the required elements is the website for the Charities Directorate. In 2018, the Government of Canada changed it’s web domain to Canada.ca. Charities had until March 31, 2019, to update their charitable donation receipts to the updated web address (Canada.ca/charities-giving). Be sure that you are in compliance!
#3 – A charity must not issue a receipt for services
Whether this is a volunteer that contributes their time and expertise or a business that is donating services to your charity, a donation receipt must not be issued. A donation receipt can only be issued for a “gift” which is defined by CRA as “a voluntary transfer of property without valuable consideration to the donor.” Services are not property – only cash or non-cash gifts of property or goods qualify for a donation receipt.
Should a business wish to donate services to your business, the Charities Directorate suggests that the business invoice the charity for the services provided and the charity pay the invoice. The business may then make a donation to the charity. It’s the paper trail that is important and also provides evidence that a fair market value transaction has occurred.
#4 – There is no tax value to issuing a charitable donation receipt to a business
The official donation receipt has value on the personal tax return but not to a business. The business will get the deduction for the appropriate value of the gift through their expenses. For example, a donation receipt to a business should be issued at the cost, not retail value, of a donation. That will automatically flow through the books of the business.
To ensure that charities are not issuing the donation receipt for incorrect amounts to a business, I recommend that the charity issue receipts that are not “official donation receipts for income tax purposes” or simply write a thank letter to acknowledge the donation.
This is not an exhaustive list of issues in issuing donation receipts but the most common ones I encounter. If you have questions about operating your charity, this is an area of my practice that I am very passionate about. I’d love to connect with you about your charity and how I might be able to help.
I am also offering a 9 hour course entitled NPO Board Basics at the Mountain Hub in late February/early March. You can find out more and register here: https://www.mountainhub.ca/events/2020/2/24/not-for-profit-board-basics