Charity Governance

Charitable Receipts: A Guide for Canadian Registered Charities

Canadian registered charities and qualified donees are granted a remarkable privilege: the ability to issue "official donation receipts." This powerful tool allows these organizations to acknowledge the generosity of their donors and foster continued support. However, many charities inadvertently stumble when it comes to understanding receipting requirements, leading to compliance issues that can affect both the organization and its directors. In this comprehensive article, we will go through the common misconceptions and provide valuable tips for registered charities and qualified donees.

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1. Understanding the Voluntary Nature of Receipts

One common misconception among charities is the belief that they must issue tax receipts for all donations received. However, this is not mandatory. Charities have the flexibility to set policies regarding when they will issue tax receipts. Some may establish thresholds for issuing receipts, while others might limit receipts to specific types of gifts. Clear communication of these policies is crucial to ensuring the public's confidence and trust in the receipting process.

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2. Spending Flexibility and Receipting

Another misconception is that failing to issue a receipt gives charities unrestricted flexibility in using the donated funds. Regardless of whether a receipt is issued, Canadian registered charities are bound by their objects, legal requirements, common law, and CRA's guidance when it comes to fund usage.

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3. The Definition of a 'Gift'

To qualify for an official donation receipt, a transfer of funds or gifts in kind must meet specific criteria. It must be voluntary, represent a complete transfer of property, and demonstrate donative intent on the part of the donor. If any of these elements are missing, the transfer does not qualify as a 'gift,' and no receipt should be issued.

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4. Common Payments That Don't Qualify

Certain payments do not qualify as gifts for receipting purposes. These include basic event or program fees, membership fees with material value, payments for lottery tickets, tuition fees (except for specific religious school tuition fees), and business sponsorships.‍

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5. Mandatory Information on Receipts

Official donation receipts must include specific information. Failure to include this information results in improper receipting. This is a common error but one that is easily rectifiable.

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6. Understanding Split Receipting Rules

Charities must correctly determine the eligible amount of a gift on the receipt, often referred to as 'split receipting.' When donors receive an advantage in return for their gift, the advantage's value must be deducted from the total gift value. This ensures the eligible gift amount is accurately reflected on the receipt.

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7. Handling Donations of Services

Donations of time, skills, and effort are considered 'services' rather than property, and they do not qualify as 'gifts' for receipting purposes. However, charities can issue receipts for services when specific conditions are met, including the charity being billed for the services.

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8. Identifying the Donor

Accurately determining the donor is vital to providing the correct receipt. When in doubt, charities can request a declaration from the donor or corporation to confirm the donor's identity.

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9. Record Keeping

The Canada Revenue Agency (CRA) mandates that charities retain copies of official donation receipts for a minimum of two years from the end of the calendar year in which the donations were made. Most other records must be kept for seven years, and it is advisable to keep donation receipts for longer, given their importance.

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10. Avoiding Conduit Situations

Charities must not act as a conduit for funds directed to foreign charities or Canadian non-profits that lack charitable status. This practice can lead to inappropriate situations and revocation of charitable status.

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Conclusion

Issuing official donation receipts is a valuable privilege for registered Canadian charities. However, with this privilege comes a responsibility to ensure compliance with the Income Tax Act (Canada) and CRA's guidance. Addressing common misconceptions and adhering to receipting best practices is essential. By mastering the art of charitable receipts, organizations can build trust, maintain compliance, and secure continued support for their vital missions.

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