Guidelines for Charitable Receipting for Canadian Charities

Canadian registered charities and other qualified donees have the privilege of issuing "official donation receipts," a crucial aspect of their operations. However, many charities face compliance issues due to a lack of understanding of the receipting requirements, putting both the organizations and their directors at risk. Issuing a tax receipt is a valuable privilege that can be likened to having a money-printing license. Therefore, it is crucial for qualified donees to provide official donation receipts in accordance with the guidelines outlined in the Income Tax Act and Canada Revenue Agency's directives.

The CRA has found that during its audits of charities, nearly 89% fail to issue receipts correctly. Receipting is likely the principal cause of Canadian registered charities losing their status following an audit. Fortunately, by understanding the proper procedures, several of the most prevalent issues can be quickly resolved with ease. This post aims to dispel common misunderstandings surrounding charitable receipting and offer practical advice to registered charities and qualified donees.

Charitable Organizations Are NOT Required to Provide Tax Receipts

There is a common misconception among charities that they must issue a tax receipt for any proper gift made to the organization. However, this is not accurate. Charities may have their own administrative policies outlining the circumstances under which they issue tax receipts. For instance, some charities may set a minimum donation for tax receipt in Canada, while others may only provide receipts for cash gifts and not gifts in kind. It is crucial for charities to be transparent about their policies with donors to maintain public trust and confidence in the receipting process. In fact, in certain instances, it may be better for charities to decline a donation rather than issue a problematic receipt, as the majority of receipting issues arise from a small fraction of receipts.

Necessary Details Must Be Included on Official Donation Receipts

To issue official donation receipts appropriately, it is necessary to include specific information on them. Failure to include any of this information renders the receipts invalid. This is the most frequently occurring error and also the most straightforward to rectify. Here are the critical details required:

• Name and address of the charity – The full legal name and mailing address of the registered charity issuing the receipt.
• Charity’s registration number – The official CRA-issued registration number confirming the organization’s status as a registered charity.
• Donor’s name and address – The full name and mailing address of the donor.
• Amount of the donation – The exact amount donated in Canadian dollars.
• Date of the donation – The date the donation was received by the charity.
• Unique serial number – A distinctive number assigned to each receipt to track and reference issued receipts.
• Signature of an authorized representative – The receipt must be signed by an individual with authority within the charity to issue official receipts.
• A statement confirming the receipt is for an eligible gift – A declaration that the donation is a genuine, voluntary gift with no benefit to the donor.
• Fair market value of any advantage received – If the donor received any benefit in return for their donation (e.g., event tickets, promotional items), the value of that benefit must be stated, and the eligible donation amount must be reduced accordingly.
• Description of non-cash gifts (if applicable) – For donations of goods or securities, a description of the donated item and its fair market value must be included.

Failure to include these elements can result in the receipt being deemed invalid by the Canada Revenue Agency (CRA), potentially affecting the donor’s ability to claim a charitable donation tax credit.

What is the Minimum Donation for a Tax Receipt in Canada?

A common question is: What is the minimum donation for a tax receipt in Canada? There is no legally mandated minimum amount required to issue a tax receipt. Charities can set a practical threshold, such as $10 or $20, to reduce administrative costs, but this is a discretionary policy. Charities should be transparent about these thresholds to ensure donors understand when they will receive receipts.

Common Payments That Do Not Qualify as Gifts

Not all donations qualify for a tax receipt. Here are some typical payments that do not meet the criteria for tax-deductible gifts:

• Standard charges for events or programs
• Membership costs that deliver tangible benefits to the donor
• Payments for lottery and raffle tickets
• Tuition fees, except for specific religious school tuition fees
• Business sponsorships

Guidelines for Split Receipting

Split receipting applies when a donor receives an advantage in return for their contribution. For example, if a donor pays $200 for a ticket to a gala dinner with a $75 meal, the charity must subtract the $75 (value of the meal) from the donation amount. Only the remaining amount ($125) qualifies for a tax receipt.

Services Received as a Contribution

Charities cannot issue receipts for services. Contributions of time, skills, and effort are considered "services" rather than property. However, if the charity is charged for the services and the individual makes a voluntary contribution for the same amount, a receipt may be issued.

Determining the Identity of the Donor

Accurate identification of the donor is essential to ensure that the receipt is issued to the correct individual or organization. In cases of uncertainty, a declaration from the donor should be requested.

Retention of Receipts

The CRA mandates that charities retain copies of all issued receipts for at least six years. Charities should also store digital receipts in an unalterable format to ensure compliance and assist with future audits.

A Charity Is Prohibited from Acting as a "Conduit"

Charities must not serve as "conduits" for donations directed to non-registered organizations or foreign entities. This practice is prohibited and may lead to the charity’s revocation.

Charitable Donation Tax Credit

Donors who contribute to registered charities can claim a charitable donation tax credit on their income tax return. The first $200 typically qualifies for a 15% federal tax credit, while amounts above $200 may receive a 29% credit. Provincial tax credits can further reduce the donor's tax liability.

Conclusion

Proper donation receipting is vital for charities to comply with CRA regulations and ensure donors can claim their donation tax credit. Charities should set clear policies, accurately issue receipts, and avoid common mistakes that could jeopardize their charitable status. Understanding the minimum charitable donation for tax receipt in Canada and implementing best practices ensures transparency and trust with donors, fostering the long-term sustainability of charitable organizations. Have questions about what qualifies for a charitable receipt? Reach out to the B.I.G. Charity Law Group Professional Corporation team of experienced charity lawyers at ask@charitylawgroup.ca or call 416-488-5888.

Frequently Asked Questions

Have questions about donation receipts in Canada? Here are answers to common questions about charitable receipting requirements and tax rules for Canadian donors and charities.

What needs to be on a donation receipt in Canada?

A valid Canadian donation receipt must include the charity's name, registration number, and address. It also needs the donor's name and address, the date the donation was received, and the donation amount. The receipt must state it's an official receipt for income tax purposes and include the date it was issued. If the donation is cash, the receipt must say so. For non-cash gifts, the receipt needs to describe the property and state who determined its fair market value. Without these details, the CRA will consider the receipt invalid.

What legally needs to be on a receipt in Canada?

Canadian law requires donation receipts to show specific information to be legally valid. The charity must include its registered name, CRA registration number, and location where the receipt was issued. The receipt needs the donor's full name and address, the donation date, and the exact amount or value. It must clearly state it's an official receipt for income tax purposes and show the date of issue. For gifts in kind, the receipt must describe the donated item and explain how its value was determined. Missing any of these required elements makes the receipt invalid.

Are charities required to issue receipts?

No, Canadian charities are not legally required to issue receipts for every donation they receive. Charities can create their own policies about when they issue tax receipts. Some organizations set minimum donation amounts before issuing receipts, while others only provide receipts for cash donations and not for donated items. However, charities must be clear and upfront with donors about their receipting policies. If a charity does issue a receipt, it must follow all CRA requirements to make sure the receipt is valid.

What are the charity tax rules in Canada?

Canadian donors who give to registered charities can claim a charitable donation tax credit on their tax return. The federal government provides a 15% tax credit for the first $200 donated each year. For amounts over $200, donors typically receive a 29% federal tax credit. Provincial tax credits provide additional savings and vary by province. To claim these credits, donors need an official receipt from a registered charity. Not all payments qualify for tax receipts, including membership fees, tuition, raffle tickets, and donations where the donor receives goods or services of equal value.

What is the maximum I can claim for donations without receipts?

In Canada, you cannot claim any charitable donation tax credit without an official receipt from a registered charity. The CRA requires proper documentation for all charitable donation claims on your tax return. There is no maximum or minimum amount you can claim without a receipt because receipts are always required. If you made a donation but didn't receive a receipt, contact the charity to request one. Charities must keep copies of all receipts for at least six years, so they should be able to provide you with a duplicate if needed.