A. INTRODUCTION
With the Royal Assent to the federal budget occurring on December 15, 2011, the New Year began with a new regulatory regime for qualified donees, which
came into force on January 1, 2012. Under the Income Tax Act (“ITA”), qualified donees are organizations that can receive gifts from registered
charities and can issue official donation receipts for gifts they receive from
individuals and corporations. While registered charities and registered Canadian amateur athletic
associations (RCAAA’s) are the more commonly known qualified donees, this
designation also applies to:
· Low-cost housing corporations for the aged;
· Canadian municipalities;
· Municipal or public bodies performing a function of government in
Canada;
· Prescribed universities outside Canada;
· Charitable organizations outside Canada to which Her Majesty in
right of Canada has made a gift (hereinafter “charitable organizations outside
Canada”);
· Her Majesty in right of Canada or a province; and
· The United Nations and its agencies.
Changes to the regulatory regime affecting these entities,
but not including Her Majesty in right of Canada or a province or the United
Nations and its agencies, generally require that these entities be identified
on a list established by the Charities Directorate of the Canada Revenue Agency
(“CRA”) as well as impose record-keeping and receipting requirements comparable
to the requirements already imposed on registered charities. Other changes
affecting registered charities and RCAAAs are discussed in detail in Charity
Law Bulletins #245 and #269.
B. REGISTRATION PROCESS
The new provisions in the ITA now require that certain
types of entities (low-cost housing corporations for the aged, Canadian
municipalities, municipal or public bodies performing a function of government
in Canada, prescribed universities outside Canada and charitable organizations
outside Canada) to be registered as qualified donees and identified on publicly
available lists that are maintained by CRA in order to be able to issue
charitable donation receipts. Different registration processes will apply
depending on the category of the qualified donee. Some types of qualified
donees will have to apply to be registered and others will be registered and
listed by CRA without any obligation imposed on the organization.
1. Municipalities and prescribed universities
Municipalities and prescribed universities outside Canada
do not have to take any additional action to be placed on the applicable list
of registered qualified donees. CRA will obtain information on recognized
municipalities from provincial governments and will be preparing the list of
qualified donee municipalities based on that information. Prescribed universities outside Canada are already listed in Schedule VIII of
the Income Tax Regulations. Prescribed universities that are on the
Schedule VIII list will be automatically added to the list of qualified donees.
2. Charitable organizations outside Canada
A charitable organization outside Canada must demonstrate
that it was the recipient of a gift from Her Majesty in right of Canada and
that it would meet the requirements for registration as a charitable
organization in Canada in order to be added to the list of qualified donees. The federal department that made the payment, or the recipient organization
itself, should forward the following information to the Charities Directorate:
· A copy of the governing document of the foreign entity
· A description of the foreign entity's activities
· A copy of the letter or certificate issued by the foreign
authority granting the foreign entity charitable status
· Copies of correspondence, agreements, or other documents related
to the Crown gift; and
· Proof that the gift has been made (for example a copy of the
cheque).
Once CRA has determined whether a charitable organization
outside Canada has met the requirements to be a qualified donee, it will
provide confirmation in writing. CRA currently maintains such a list, which can be accessed here: http://www.cra-arc.gc.ca/chrts-gvng/qlfd-dns/qd-lstngs/gftsfrmhrmjsty-lst-eng.html.
3. Public bodies and low-cost housing corporations
Municipal or public bodies performing a function of the
government in Canada and low-cost housing corporations for the aged will have
to apply to CRA to be on the list. Municipal or public bodies performing a
function of government include organizations such as municipal authorities, First
Nations governments, school boards and public transit authorities. Low-cost housing corporations for the aged must be resident in Canada,
constituted exclusively for the purpose of providing low-cost housing
accommodation for the aged and must not have any income payable to a
proprietor, member or shareholder.
The process by which these organizations must apply to be
registered and listed has not yet been developed by CRA. Organizations will
continue to be qualified donees until the process is finalized, at which time
they will have to apply. However, the Charities Directorate of CRA has advised that the application
process for public bodies will not involve any scrutiny by CRA, but will be simply
a process to record which organizations are self-determining to be public body
or low-cost housing corporation.
C. ISSUING OFFICIAL DONATION RECEIPTS
A considerable advantage to being a
qualified donee is that an organization can then issue charitable donation
receipts eligible for a tax deduction or credit, as the case may be. The new
regulatory regime provides CRA with the power to suspend receipting privileges
of qualified donees or revoke qualified donees status if receipts are not
issued in accordance with the Income Tax Act and its regulations.
As such, qualified donees must take care
to properly issue donation receipts. Official donation receipts can be
issued only for transactions that qualify as gifts (see http://www.cra-arc.gc.ca/chrts-gvng/chrts/prtng/gfts/whts-eng.html). Official donation receipts must include the following
information, which must be legible and unaltered:
- a statement that
it is an official receipt for income tax purposes;
- the name and
address of the qualified donee;
- the serial number
of the receipt;
- the place or
locality where the receipt was issued;
- the day or year
the donation was received;
- the day on which
the receipt was issued if it differs from the day of donation;
- the full name,
including middle initial, and address of the donor;
- the eligible
amount of the gift;
- the signature of
an individual authorized by the qualified donee to acknowledge donations;
and
- the name and Web
site address of the CRA - www.cra.gc.ca/charitiesandgiving.
Further, the value of non-cash must be properly
ascertained. Receipts for such gifts must include a brief description of the
property transferred, the name and address of the appraiser (if the property
was appraised) and the fair market value of the property at the time the gift
was made.
D. BOOKS AND RECORDS
The new regime also creates a new
requirement that qualified donees maintain proper books and records and provide
CRA with access to these books and records upon request. Qualified donees that
fail to keep adequate books and records or fail to provide the books and
records to CRA upon request may have their receipting privileges suspended or
their qualified donee status revoked. Books and records must contain:
- Information to
allow the CRA to verify revenues for which donors can claim tax credits or
deductions
- Information to
allow the CRA to confirm that they meet the requirements for qualified
donee status under the Income Tax Act; and
- A duplicate of
each receipt containing prescribed information for each donation received.
E. CONCLUSION
The new compliance requirements for qualified donees will
create additional obligations for many entities seeking to be able to issue
charitable donation receipts and these obligations vary depending upon the type
of entity. Though some qualified donees will have to apply to be on the lists,
this application appears to be more of a compilation process and less of a
screening process. Organizations seeking confirmation of their status as a
municipal or public body performing a function of government in Canada may want
to consider other options for confirming their status.
The major impact that these changes will have is the risk
to qualified donees that do not keep adequate books and records or that are
careless with their receipting. Qualified donees must therefore ensure that
they comply with the requirements of the Income Tax Act or they risk a
suspension of receipting privileges or a loss of eligible donee status. For
more information on this issue, and to keep abreast of the listing process for
municipal or public bodies performing a function of the government or low-cost
housing corporations for the aged, please see http://www.cra-arc.gc.ca/chrts-gvng/qlfd-dns/menu-eng.html.