HomeMy WebLinkAboutG11 - Donations Receipting.docPOLICY TYPE: Financial
POLICY TITLE: Donation Receipting
POLICY #: G11
POLICY APPROVED BY: Chief Administrative Officer
EFFECTIVE DATE: December 12, 2017
REVISED: December 12, 2017
APPLICABLE TO: All Employees
1. Purpose:
To formalize the donation receipting process and outline the requirements to comply with CRA donation receipting rules.
2. Policies:
a) Employees will read the following donation receipting policy prior to their involvement in any capacity with a donation transaction.
b) Employees will bring any significant, unusual or complex donations to the attention of their immediate supervisor.
c) When transacting gift-in-kind donations of any sort, employees will complete the checklist included in the policy on page 15.
d) All employees and representatives of Boards of Council will collect all pieces of information relating to that gift and will forward this information to the Finance Department before
a receipt can be issued by the Manager of Accounting Services, Deputy Treasurer or designated delegate.
e) Only Finance Department employees are authorized to issue donation receipts.
Table of Contents
Background Information 1
Municipality of Clarington tax status 1
Service area and stakeholders 2
Section A: Receiving a donation 3
Qualifying donation versus non-qualifying 3
Capturing donor information 6
Obtaining approval 6
Section B: Valuing the donation 7
Monetary donations 8
Example 1 – Cash gift (no advantage) 8
Example 2 - Cash gift with advantage 9
Gift-in-kind: fair market value 10
Securities - Bonds, shares, mutual fund units 10
Other property – Art, furniture, jewellery, real estate 10
Example 3 – Gift-in-kind (no advantage) 12
Example 4 –Gift-in-kind with advantage (i.e. “split receipt”) 13
Gift-in-kind: deemed fair market value 15
Example 5 – Gift-in-kind at deemed fair market value 16
Gift-in-kind Questionnaire 16
Gift-in-Kind Questionnaire 17
Split receipting: Partial donation to Municipality, partial benefit to donor 18
Example 6 - Split receipt 18
Fundraising events 20
Example 7(a) – Fundraising event with giveaways 20
Example 7(b) – Fundraising event with giveaways 20
HST paid on gifts 21
Section C: Complying with donation rules 22
Replacing issued official donation receipts 22
Correcting unissued official donation receipts 22
Complying with CRA information retention requirements 22
Consequences of improper receipting 23
Background Information
Municipality of Clarington tax status
The Municipality of Clarington (the “Municipality”) is a municipality in the Province of Ontario, Canada. It conducts its operations guided by the provisions of provincial statutes such
as the Municipal Act, 2001; the Municipal Affairs Act and related legislation.
Municipalities are among the nine specific types of organizations that fall under “qualified donee” status in the Income Tax Act of Canada (ITA). As such, they are permitted to issue
official donation receipts. The 2011 Federal Budget introduced a number of requirements for municipalities with qualified donee status that became effective January 1, 2012:
Municipalities are required to be registered with the Canada Revenue Agency (CRA) and included on a publicly-available list maintained by CRA;
Municipalities are required to abide by the rules of the ITA in relation to the issuance of official donation receipts;
Municipalities are required to issue receipts that contain the same information as registered charities, the details of which will be outlined further in this manual;
Municipalities are required to maintain proper books and records supporting official donation receipts issued and provide access to those books and records to CRA upon request.
If the requirements above are not adhered to, CRA can revoke the status of the Municipality as a qualified donee and suspend receipting privileges.
Given the complexities involved in issuing donation receipts and the Municipality’s desire to comply with CRA rules, this policy has been developed to assist Municipal staff and stakeholders
in better understanding the donation receipting process.
Service area and stakeholders
The Municipality interacts with a number of stakeholders with interests in the donation receipting process. These stakeholders include, among others not specifically listed here:
Donors;
Municipal Finance department personnel;
The Mayor’s office;
Members of Council;
Boards of Council;
Fundraising committees;
Corporate sponsors;
Museums,
Galleries;
Libraries; and
Canada Revenue Agency
Section A: Receiving a donation
All donations receipted will exclude HST.
Qualifying donation versus non-qualifying
It is the Municipality’s responsibility to know what qualifies as a gift for income tax purposes, how much of a gift can be receipted, and how to issue those receipts. Not all gifts
received by the Municipality will qualify as gifts for income tax purposes.
The brief definition of a gift that qualifies for a donation receipt is that it is a voluntary, non-reciprocal transfer of property owned by the donor to the Municipality. The components
of this definition are further explained through the 5 questions below.
CRA advises that qualified donees must ask the following 5 questions in determining if a gift has been made:
Was the gift made voluntarily?
The donation must be given freely. If a donation is made as a result of a contractual or other obligation (for example, a court order), it is not eligible for a receipt.
Was there a transfer of property?
Only gifts of property are eligible for donation receipts (for example, cash, computers, equipment, bequests, etc.)
Gifts of service or time, while valuable to the Municipality, cannot be receipted.
A pledge to donate cannot be receipted until the donation of property is actually received.
? Gift certificates donated by the issuer of the certificate are not considered property and are only eligible for receipts under specific circumstances. However, a gift certificate
purchased and then donated does constitute property, and may be receipted.
Did the donor receive an advantage?
When a donor receives an advantage as part of their donation, all or part of the donation may no longer qualify as a gift. See “Split receipting” under “Valuing the donation” section
for details. Common examples of donor advantages include tickets to an event, use of property and meals.
Was the gift directed to a specific person, family or other non-qualified donee?
While donors can direct their gift to a specific program operated by the Municipality, they cannot choose the specific beneficiaries of their donation. If the donor retains a high amount
of control over the gift and the Municipality is not free to reallocate the funds as it sees fit, the gift does not qualify for a receipt.
Does the gift fall into one of the types of transactions that generally do not qualify as gifts?
Transactions that do not qualify as gifts include:
a court ordered transfer of property to the Municipality;
the payment of a basic fee for admission to an event or program;
the payment of membership fees that convey the right to attend events, receive literature, receive services, or be eligible for entitlements of any material value that exceed 80% of
the value of the payment;
a payment for a lottery ticket or other chance to win a prize;
the purchase of goods or services from a charity;
a donation for which the fair market value of the advantage or consideration provided to the donor exceeds 80% of the value of the donation;
a gift-in-kind for which the fair market value cannot be determined;
donations provided in exchange for advertising/sponsorship;
gifts of services (for example, donated time, labour);
gift certificates donated by the issuer;
pledges;
loans of property; and
the lease of premises.
Examples of various types of gifts the Municipality may receive have been included in the “Valuing the donation” section below.
Capturing donor information
Now that it has been determined that a gift has been received, there are several pieces of information relating to that gift which must be collected by the Municipality before a receipt
can be issued.
The information required to be reported on the official donation receipt includes:
Donor name
Donor address
Eligible amount of the gift
Date donation was received
Date receipt was issued
Location where receipt was issued
Authorized signature of issuer
Receipt #
Correct Municipal name
Correct Municipal address
CRA has provided example donation receipts showing the information that must be reported by the receipt issuer. See Section B: Valuing the Donation for examples of receipts showing required
information.
Obtaining approval
Municipal Finance department employees and employees of Boards of Council, as approved by the Manager of Accounting Services or Deputy Treasurer, are authorized to issue donation receipts
for cash gifts with no advantage and gifts in kind with no advantage up to a threshold of $1,000. For any gifts exceeding the $1,000 threshold, and for any gifts where an advantage
to the donor has been provided or is owed, employees must obtain approval from the Manager of Accounting Services or Deputy Treasurer.
Section B: Valuing the donation
All donations receipted will exclude HST.
If an official donation receipt is being issued, it must reflect the fair market value of the gift received. The onus is on the receipt issuer to determine that the fair market value
reflected on the donation receipt is accurate. In cases where the fair market value of the gift cannot be determined at the time the gift is received, a donation receipt cannot be issued.
CRA has defined fair market value as the highest price, expressed in dollars that the property would bring in an open and unrestricted market, between a willing buyer and a willing seller
who are both knowledgeable, informed, and prudent, and who are acting independently of each other.
The need to determine fair value of the gift received applies to monetary donations as well as gifts in kind. We have provided examples of the most common scenarios below.
Monetary donations
There are two types of monetary donations – those in which the donor does not receive any consideration in return for making the gift (i.e. a non-reciprocal gift) and those in which
the donor does receive a benefit, advantage or compensation in return for making the gift. The distinction between these two scenarios is important, as only the eligible amount of the
gift can be issued an official donation receipt. The eligible amount is the cash donation received, less the fair value of any consideration provided or owed to the donor. The following
CRA examples illustrate the difference in receipts issued under each type of monetary donation.
Example 1 – Cash gift (no advantage)
The example below illustrates the most common gift scenario – a donor has gifted cash and has received nothing in exchange. In this case, if the donor gave a $50 cash donation and will
receive no benefit in return, the eligible amount of the gift is $50.
Example 2 - Cash gift with advantage
In this case, the donor has given cash and has received a benefit in return. For example, a donor has given $50 cash to attend a fundraising luncheon and receives a meal valued at $20.
The total amount received by the Municipality is $50 and the value of the advantage to the donor (the meal) is $20. Therefore, the eligible amount of the gift is $30.
Note – If the amount of the advantage exceeds 80% of the fair market value of the gift, the charity is advised to contact CRA before issuing a receipt.
Gift-in-kind: fair market value
Gifts of property do not only mean gifts of cash, but can also include non-cash property such as artwork, furniture, clothing, real estate, publicly listed securities, building materials,
etc. As these are all gifts of property, the Municipality may issue receipts for them. However, unlike gifts of cash, determining the fair market value of a non-monetary gift of property
is more challenging. The value is required to be reported by the Municipality on receipts issued and if the value cannot be determined, a receipt cannot be issued. But beyond receipting
purposes, knowing the fair market value is also helpful in cases where the Municipality chooses to liquidate the gift-in-kind at a later date.
Securities - Bonds, shares, mutual fund units
If a security is actively traded on a public market, the fair market value is generally the closing bid price on the date the security is received by the Municipality or the mid-point
between the high and low trading prices for the day; whichever provides the most reliable indicator of the security’s fair market value. If no activity occurred on the date the security
was received, the most recent closing bid price within the four weeks preceding the donation should be used to indicate the security’s fair market value.
Other property – Art, furniture, jewellery, real estate
For gifts in kind that do not have a public market, an appraisal should be obtained from an individual who is competent and qualified to do so. Generally, if the property’s fair market
value is less than $1,000, a qualified person associated with the Municipality who has sufficient knowledge of the property can do the appraisal. However, in cases where the fair market
value is expected to exceed $1,000, an independent, professional appraisal should be obtained. In other words, the appraisal should be done by a professional who is not associated with
either the donor or the Municipality.
In cases where the property is expected to have a substantial fair market value (for example, exceeding $100,000), greater diligence with respect to obtaining the appraisal amount is
expected. Obtaining two independent professional appraisals and taking the average fair market value amount determined by those professionals as the fair market value would be acceptable.
Donation of land as an ecological gift is administered by Environment Canada through the Ecological Gifts Program. To qualify for income tax benefits
associated with ecological gifts, the gift must satisfy specific criteria for an ecological gift.
Example 3 – Gift-in-kind (no advantage)
In this scenario, a non-cash gift has been made by the donor and they receive no benefit or consideration in return for the gift. For example, the Municipality receives a non-cash gift
of a piece of furniture with an appraised value of $1,000 and there is no advantage received by the donor or any other person for the gift. In this case, the eligible amount of the
gift is $1,000.
Example 4 –Gift-in-kind with advantage (i.e. “split receipt”)
In this case, the donor of a non-cash gift receives something in return (consideration or an advantage) as a result of making the gift. For example, the Municipality receives a piece
of furniture appraised at $1,000 and the donor receives an advantage of $200 cash. Therefore, the eligible amount of the gift is $800.
Note – If the amount of the advantage exceeds 80% of the fair market value of the gift, the charity is advised to contact CRA before issuing a receipt.
Gift-in-kind: deemed fair market value
Under certain conditions, a receipt issued for a non-cash gift must be issued for the lesser of the gift’s fair market value (as explained above) and its cost to the donor immediately
before the gift is made. The purpose of the deemed fair market value rule is to prevent donors from “buying low and donating high”, which could inflate their income tax receipt value
beyond the consideration they actually paid to acquire the property.
The conditions that require the deemed fair market value rule are as follows:
the gift was donated to the Municipality after December 5, 2003; and
the gift received by the Municipality was initially acquired by the donor as part of a tax shelter arrangement; or
the gift was acquired less than three years before the time of donation; or
the gift was acquired less than ten years before the time of donation, with one of the main purposes being to gift the property to the Municipality.
In these cases, the property is deemed to have a fair market value that is no greater than the lesser of:
the actual fair market value,
the donor’s cost to acquire the property, or
in the case of capital property, the adjusted cost base.
If a donor makes a gift-in-kind (non-cash) donation to the Municipality, for which a receipt is issued, and fails to notify the Municipality that the gift-in-kind is subject to the deemed
fair market value rule, the value of that donor's gift could be reduced to nil.
Certain gifts are exempt from the deemed fair market value rule and would normally be assessed at fair value market value. These include:
gifts made as a consequence of a taxpayer's death;
gifts of inventory;
gifts of real property situated in Canada;
gifts of certified cultural property; and
gifts of certain publicly-traded securities.
Example 5 – Gift-in-kind at deemed fair market value
A donor purchases a work of art for $300, and six months later donates the work to the Municipality. The Municipality would like to issue the donor an official donation receipt. Prior
to gifting the art, the donor has the work appraised at a value of $1,000.
Because the donor is gifting the art within three years of having purchased it, the Municipality must issue a receipt for the gift at the lesser of its fair market value and its cost
to the donor immediately before the gift was made. In this example the official donation must be made out for $300.
Gift-in-kind Questionnaire
The questionnaire on the following page should be considered in full before accepting a gift-in-kind so as to ensure that the Municipality has all required information to determine whether
a gift-in-kind qualifies as a gift, should be accepted and receipted by the Municipality and whether the value of the gift should be appraised and recorded at fair market value or deemed
fair market value.
Gift-in-Kind Questionnaire
#
Question
Response
1.
How much effort will be required to establish the fair market value?
2.
What costs will be incurred to establish the value and is the Municipality or donor responsible for those costs?
3.
Does the Municipality need to know the donor’s cost in acquiring the item (see below) and, if so, what was the donor’s cost?
4.
Is the gift an item the Municipality can use itself?
5.
Would the gift force the Municipality to take on a new activity or project and, if so, are the approvals in place to take on these new activities?
6.
Will the gift require the Municipality to spend money in order to obtain and use it (for example, insurance costs, shipping costs, building and maintenance costs, etc.)?
7.
Can the item be easily sold?
8.
Does the Municipality have the capacity or time to sell the item?
9.
Is the gift worth the effort?
Split receipting: Partial donation to Municipality, partial benefit to donor
The eligible amount of the gift for which a donation receipt may be issued is equal to the fair market value of the gift received, less the fair market value of the advantage received
by or owing to the donor. This method of determining the eligible gift amount is called, “split receipting” and is demonstrated in Example 4 on page 11.
The fair market value of an advantage (for example, meals, services or accommodations) is determined similarly to the fair market value of a gift-in-kind. However, while only gifts of
property qualify as a gift-in-kind, any type of advantage, property or otherwise, must be considered in determining the eligible gift amount.
The following are hard and fast rules with respect to advantages to donors on gifts of property:
If the value of the advantage is 80% or less of the fair market value of the donation, then a receipt may be issued for the difference;
If the value of the advantage is greater than 80% of the value of the donation, no gift is deemed to have been made, and a receipt cannot be issued;
If the value of an advantage is the lesser of $75 and 10% of the value of the donation, it is considered nominal (i.e. de minimis), and it need not be deducted from the eligible amount
of the gift for receipting purposes; and
If the fair market value of the advantage cannot be determined, a receipt cannot be issued.
Further guidance on the topic of determining fair market value of benefits to donors can be found on the CRA website at: Fundraising events
This concept can be illustrated through an example from CRA:
Example 6 - Split receipt
An individual donates $500 to the Municipality and, in appreciation, the donor
receives two theatre tickets worth a combined value of $90 from the Municipality. The following calculations are used to determine the eligible amount of the gift for receipting purposes:
Nominal threshold: 10% of $500 is $50.
Therefore the advantage must be $50 or less to be considered de minimis.
Advantage threshold: 80% of $500 is $400.
Therefore the advantage must be less than $400 for a receipt to be issued.
In this example, the advantage, $90, is not de minimis, and must be deducted from the value of the gift. However, the value of the advantage does not exceed 80% of the value of the donation,
so a receipt can be issued. The eligible amount for which a receipt can be issued is:
$500 donation - $90 tickets = $410.
Fundraising events
Prior to fundraising events, organizers must communicate to attendees the threshold for a donation to be eligible for a charitable donation receipt.
Often the organizers of fundraising events will provide complimentary benefits (“giveaways”) to all participants simply for attending. For example, simply by attending, an individual
may receive pens, key chains, or an entry into a door prize. In these cases, the total value of complimentary benefits must be totalled and allocated on a pro rata basis to all participants
that attended.
In many fundraising events, the advantage an individual receives for simply attending is of nominal value. In these cases, the de minimis rule may be applied to complimentary benefits.
However, the Municipality should calculate the value of any “main event” benefit (event tickets, greens fees, meals, etc.) separately from the complimentary benefits (door prize entry,
water bottles, pens, etc.)
Example 7(a) – Fundraising event with giveaways
A fundraising dinner attendee provides a donation of $50 and receives a meal at the event for which the fair value is $40. The individual also receives a branded T-shirt bearing the
fundraiser’s name and logo for attending the event, which has a fair value of $10.
The de minimus rule states that advantages that have a combined value that does not exceed the lesser of $75 or 10% of the value of the gift are considered too minimal to affect the
amount of the gift.
Nominal threshold: 10% of $50 is $5.
Therefore the advantage must be $5 or less to be considered de minimis.
In this example, the complimentary benefit, $10, is not below de minimis and therefore must be deducted from the value of the gift. The value of the main event benefit, $40, is also
greater than de minimis and must be deducted from the value of the gift. Therefore, the donation is not eligible for a receipt:
$50 donation - $40 meal - $10 T-shirt = $0.
Example 7(b) – Fundraising event with giveaways
Let’s change the facts above to say the participant donated $55. Is any portion of the donation eligible for a donation receipt now? Immediately, one would think the
answer is yes, $5 is now eligible for a donation receipt. However, donations can only be receipted for amounts in excess of 80% of the advantage received. In this case, the advantage
received is $50, so a donation must be $63 or greater ($50 ÷ 80%) to be eligible for a donation receipt.
The fundraiser should inform donors that only donations greater than $63 will be issued a receipt, and that a donation of $63 will be issued a receipt totaling $13 ($63 donation - $40
meal - $10 T-shirt).
Further guidance on the topic of valuing complimentary benefits at fundraising events can be found on the CRA website at: Fundraising events
HST paid on gifts
With gifts of property, often the donor has paid HST on the property when they acquired it. However, when the donor gifts newly purchased property to the Municipality, CRA takes the
position that the fair market value of an item does not include HST paid on purchasing the item. Therefore, the amount entered on the official receipt should be the fair market value
prior to HST.
Section C: Complying with donation rules
Replacing issued official donation receipts
If a receipt has been issued, but was subsequently lost or contained incorrect information, the issuer is permitted to issue a replacement receipt to the donor.
The replacement receipt must include:
All the same required information that was captured to issue the initial receipt (refer to “Capturing donor information” on page 5 for list of required information);
The serial number of the original receipt; and
A statement that it replaces the original receipt.
The Municipality must retain its original copy of the receipt that required a re-issue and clearly mark “cancelled” on it.
Correcting unissued official donation receipts
If the Municipality has prepared a donation receipt containing incorrect information but has not yet issued it to the donor, a new receipt can be prepared. However, both copies of the
original receipt must be retained (i.e. the donor copy and the Municipal copy) and clearly marked “cancelled”.
Complying with CRA information retention requirements
In order to maintain their qualified donee status, municipalities must keep adequate books and records containing:
information to allow the CRA to verify revenues for which donors can claim income 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.
Books and records include, but are not limited to financial statements and other source documents, such as cancelled cheques, bank deposit slips and gift-in-kind third party valuation
evidence.
If a municipality fails to maintain adequate books and records, or fails to provide them to CRA upon request, it may have its qualified donee status suspended or revoked entirely. Further
information regarding retaining and records is available from the CRA website here: Keeping Records
Consequences of improper receipting
There are various situations in which the Municipality could fail to meet the requirements of the donation receipting rules. Accordingly, the consequences of improper receipting also
vary in severity.
The CRA has outlined the following specific scenarios and penalties for improper receipting:
If the Municipality issued an official donation receipt that includes incorrect or incomplete information, it is liable to a penalty equal to 5% of the eligible amount stated on the
receipt. This penalty increases to 10% for a repeat offence within five years.
If the Municipality issued an official donation receipt that includes deliberately false information, it is liable to a penalty equal to 125% of the eligible amount stated on the receipt.
If the Municipality is liable for penalties in excess of $25,000 for issuing false receipts, that the Municipality is also liable to one year's suspension of its qualified donee status.
If the Municipality contravenes or continues to contravene the receipting requirements of the Income Tax Act, it could also have its registration revoked.
Further information regarding the application of sanctions and penalties can be found on the CRA website at: Consequences of improper receipting