There has been a paucity of CRA views on municipalities and receipting. Although some rules that apply to registered charities don’t apply to municipalities, it is clear that the rules around receipting are similar. Municipalities that are not aware of their obligations and issue inappropriate receipts could lose their qualified donee status.
In this note we have a CRA letter, where a municipality was collecting funds to be given to individuals who were dealing with an “unfortunate event”.
CRA determined that simply taking in funds and redistributing them to individuals would not be a donation to a municipality but a conduit situation.
Obviously, the facts and circumstances are important for determining the answer.
This CRA letter also has a reminder that municipalities are not obliged to issue receipts in any circumstances.
Charities, municipalities and other qualified donees may find our course Receipting for Canadian Registered Charities to be helpful. In addition, you can find our Receipting Kit 2023 there.
Here is the text of the CRA letter:
LANGIND E
DOCNUM 2024-1005231E5
AUTHOR Estabrooks, Karri Lea
DESCKEY 25
RATEKEY 2
REFDATE 240402
SUBJECT Directed gifts – official tax receipts
SECTION 118.1(1); 110.1(1); 168(1)(f)
SECTION
SECTION
SECTION
$$$$
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA. Prenez note que ce document, bien qu’exact au moment émis, peut ne pas représenter la position actuelle de l’ARC.
PRINCIPAL ISSUES: Whether a municipality is required to issue official tax receipts in respect of funds the municipality receives that are redistributed to certain individuals?
POSITION: If the municipality is merely collecting funds on behalf of another person or organization that is legally or otherwise entitled to the funds so donated the municipality is not in receipt of a gift for the purposes of subsections 118.1(1) and 110.1(1) of the Act.
REASONS: Legislation and prior views.
XXXXXXXXXX 2024-100523
Karri Lea Estabrooks
April 2, 2024
Dear XXXXXXXXXX:
Subject: Directed gifts – Official tax receipts.
We are writing in response to your request of January 29, 2024, where you ask whether a municipality is required to issue donation receipts. Briefly, you describe that a municipality that is a qualified donee issued a press release in which it solicited donations that were redistributed to a specific fund for certain individuals following an unfortunate event. The fund was not part of any program operated by the municipality.
Our Comments
This technical interpretation provides general comments about the provisions of the Income Tax Act (the Act) and related legislation (where referenced). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R12, Advance Income Tax Rulings and Technical Interpretations.
Section 118.1 of the Act generally provides that an individual may claim, in a taxation year, a non-refundable tax credit for the eligible amount of the individual’s “total charitable gifts” made to a “qualified donee”. Subsection 110.1(1) of the Act permits a corporation to claim a deduction in computing taxable income in respect of the eligible amount of a gift made by the corporation to a qualified donee. Subsection 149.1(1) of the Act defines a qualified donee and includes a municipality in Canada that is registered by the Minister, and the definition of “total charitable gifts” is defined in subsection 118.1(1) of the Act. The eligible amount of the gift is generally defined as the amount by which the fair market value of the gifted property exceeds the amount of the advantage, if any, in respect of the gift. Under subsections 118.1(2) and 110.1(2) of the Act, the tax credit or deduction, as the case may be, can be claimed, within certain limits, only if the gift is supported by an official donation receipt issued by the qualified donee.
There is no requirement under the Act for a qualified donee to issue an official tax receipt for donations received. Where a qualified donee issues an official tax receipt for donations received, the tax receipt must contain the prescribed information described in sections 3501 and 3502 of the Income Tax Regulations (Regulations).
In addition, pursuant to subsections 149.1(4.3) and 168(1) of the Act, a municipality may be subject to revocation of its registered status if, among other things, the municipality:
– ceased to comply with the requirements of the Act for its registration,
– issued a receipt for a gift otherwise than in accordance with the Act and the Regulations or that contains false information.
It is our general view that donations can be receipted by a municipality in Canada on behalf of a program or entity which operates under the authority of the municipality (e.g., a committee established by a municipal bylaw) provided the municipality retains discretion as to how the donated funds are to be spent. If a municipality is merely collecting funds from donors that will simply be redistributed to a person or organization that is not a qualified donee and the latter is legally or otherwise entitled to the property so transferred, the municipality is not in receipt of a gift and cannot issue a donation receipt. In that case, the municipality is merely acting as a conduit for the other person, and it is our view that amounts received by the municipality on behalf of the other person do not qualify as gifts to a municipality in Canada for the purposes of subsections 118.1(1) and 110.1(1) of the Act.
Further information regarding issuing charitable receipts is available on the CRA website at https://www.canada.ca/en/revenue-agency/services/charities-giving/charities/operating-a-registered-charity/issuing-receipts.html.
We trust that these comments will be of assistance.
Yours truly,
Bob Naufal
Manager
Financial Institutions Section
For Director
Financial Industries and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch