Background

The Tax Court of Canada (TCC) considered a related issue in a 2020 decision, Ampratwum-Duah v. The Queen (Ampratwum). Canada Revenue Agency (CRA) reassessed a taxpayer who had claimed charitable donations during the 2005, 2006, and 2007 taxation years. That taxpayer was the religious leader of the charity during that time and signed off on his own donation receipts. In support of his case, the taxpayer’s only evidence of the donations were the receipts themselves; he did not provide any accompanying bank records, church records, or testimony from another official at the charity.

Decision

The TCC was unconvinced, and reminded the taxpayer of his obligation under the Income Tax Act (ITA): section 230, subsection (6) requires a taxpayer who serves a notice of objection or is a party to an appeal to the TCC to “retain every record, book of account, account and voucher necessary for dealing with the objection or appeal”.

In other words, the taxpayer needed to keep adequate records to determine his payable taxes, including claimed deductions, until his appeal was decided. He failed to do so because the only records he kept were the official donation receipts, signed by himself. The court held that, without any corroborating evidence, the taxpayer failed to comply with the record-keeping requirement in s. 230(6) of the ITA. It then held that there was insufficient evidence to determine whether the claimed donations had been made.

Application

Where does this leave the charity’s financial officer, or similarly authorized individual? It is possible the court could have found in favour of this taxpayer if he had provided bank records or compelling testimony from someone else at the charity with knowledge of donations. If an authorized individual decides to sign their own official donation receipts, they should keep adequate records from a variety of sources. However, best practice is to avoid that situation altogether by having another authorized individual sign their official donation receipts.

CCCC members can log in to the Knowledge Base for more information about keeping proper books and records. They are also welcome to contact our Member Support Team with their questions.

The post Who Issues The Treasurer’s Receipts? appeared first on CCCC Blogs.

Of course, if the facts of another case are sufficiently distinct, it could lead to a different outcome. But the charity would have to prove to the court that it would suffer irreparable harm during the suspension period. In this case, the lower courts did not agree that the charity would suffer that kind of harm.

Background

Following an audit, the Canada Revenue Agency (CRA) imposed a penalty and suspended Human Concern’s receipting privileges for one year. CRA’s position was that the charity made false charitable tax receipts.

That means that sections 188.1 and 188.2 of the Income Tax Act applied.

Section 188.1 lists penalties for various forms of non-compliance. For example, if donation receipts contain incorrect information, section 188.1(7) imposes a monetary penalty of 5% of the value of the incorrect donation receipts. If the donation receipts contain false information, section 188.1(9) imposes a monetary penalty of 125%. If that amount is more than $25,000 for a given tax year, section 188.2(1)(c) automatically triggers a one-year receipting suspension. It is effective 7 days after CRA sends, by registered mail, notice of the financial penalty.

Section 188.2(4) allows a charity to apply to the Tax Court of Canada (Tax Court) to postpone any remaining suspension period if the charity has also filed a notice of objection.

Human Concern filed a notice of objection and made an application to the Tax Court.

Tax Court Decision (August 4, 2021; unreported)

The Tax Court can grant an application to postpone a suspension “only if it would be just and equitable to do so” (ITA s 188.2(5)). For a postponement to be “just and equitable”, the requesting charity has to meet the test for an injunction. That test requires the charity show (1) there is a serious issue; (2) it will suffer irreparable harm without the postponement; and (3) convenience favours postponing.

The Tax Court must decide these applications within 30 days of filing (Tax Court of Canada Rules (Informal Procedure), SOR/90-688b, s 18.3(3)).

The Tax Court dismissed the application, finding that Human Concern would not suffer irreparable harm and that the balance of convenience favoured the government.

The charity appealed to the Federal Court of Appeal (FCA).

Federal Court of Appeal Decision (March 2, 2022)

At the FCA, Human Concern argued that the Tax Court made two main errors.

First, that the Tax Court was wrong to find the suspension of receipting privileges would not result in irreparable harm. The FCA disagreed. It held that Human Concern was asking the court to reweigh the evidence, which was beyond its role. The FCA also held that the Tax Court was “entitled to discount” Human Concern’s assertions about the existence of irreparable harm.

Second, that the Tax Court failed to account for principles of natural justice. The FCA held there was “no merit” to Human Concern’s natural justice arguments. The principles of natural justice ensure that the procedure is fair. What is fair depends on the context of the decision being made, but core elements include an impartial decision-maker, a right to be heard, and knowing the reasons for the decision.

The FCA dismissed the appeal.

Supreme Court of Canada Decision

The charity asked the SCC to hear a further appeal. As noted at the outset, the SCC decided not to hear the appeal.

Receipting Resources

Questions about receipting? In addition to our recent post about year-end donations, check out our member Knowledge Base section, Charitable Receipts. You’ll find checklists, tips and topics included split-receipting, services, and what has to be included on official donation receipts.

The post SCC Dismisses Leave to Appeal Re: Receipting Suspension appeared first on CCCC Blogs.

Receipting Regulation

The starting point for any receipting question is to look at the Income Tax Regulations.

Regulation 3501 lists the required content for official receipts, and there is a lot. But for our year-end receipting question, the relevant parts are:

• Where the gift is a cash gift, the receipt must show the date on which, or the year during which, the gift was received
• Where the gift is a gift of property, the receipt must show the date on which the gift was received (among other things)

Receipting In-Person Offerings/Donations

When in-person church offerings are collected on January 1 of the new year, it will be a gift for the new year, regardless of what is written on the envelope or the cheque. Similarly, any credit card or debit transactions that are initiated on January 1 will be a gift for the new year.

Receipting Donations Sent By Mail With Postmark

When donations are received by mail, the Canada Revenue Agency considers the date of the donation to be the date of the postmark on the envelope. Your charity needs to keep the stamped envelope as part of its books and records.

This means that if a cheque dated December 31 is received January 5, it can still be receipted for the December 31 date, so long as the envelope is postmarked prior to the new year.

Charities need to be mindful of the date written on the donation itself to ensure a cheque is not post-dated into the new year.

Receipting Donations Sent by Mail Without Postmark

When donations are received by mail without a postmark, your charity needs to be consistent and show good faith in how the donation is processed and recorded.

If the envelope arrives along with other envelopes all postmarked December 31, and the donation cheque is dated for the prior year, it may be reasonable to include it in the prior year.

If the envelope arrives along with other envelopes that have mixed postmarked dates, it may be reasonable to include it in the new year.

Receipting Electronic Donations “In Process”

When donations are received electronically, the CRA does not have a specific statement about determining the date. However the same principles as the ‘postmarked cheque in the mail’ can be applied.

For example, if your charity’s bank, service provider, or credit card company provides hard copy documentation that the donor made the transaction on December 31 or earlier, it would be reasonable to treat the gift as received prior to the new year. Your charity needs to keep the documentation as part of its books and records.

Receipting Donations Consistently

It is up to your charity to set its own policy on how it will treat end-of-year donations. Your charity may choose to (1) determine, using postmarks and transaction documentation, whether the donation should be receipted for the current year or (2) treat any gift delivered on or after January 1 as a gift for the new year.

Your charity should be consistent in this choice and should advise donors ahead of time. Your approach should be set out in a gift acceptance policy so that staff, stewardship representatives, fundraisers, and donors are all aware and informed.

Your charity may also choose to incorporate a ‘cut-off’ date that is determined each year, depending on the calendar, holidays, and staffing – e.g. the Friday ahead of New Year’s Day when that day falls on weekend.

A simple addition to your gift acceptance policy can address year-end gifts. For example:

Year-End Gift Acceptance Policy

Donations sent by mail must be:

• Dated in the current year,
• Have an envelope stamped (or metered) and postmarked by December 31 of the current year, and
• Be delivered within one week of New Year’s Day

For an official donation receipt to be issued for the current year.

Donations sent electronically, whether by e-transfer, credit card, or third-party service provider must be received by [charity] on or before December 31 for an official donation receipt to be issued for the current year.

Additional Resources

We’ve got more information on official donation receipts and a sample gift acceptance policy in our Member Knowledge Base.

The post Receipting Year-End Donations appeared first on CCCC Blogs.