How to Correctly Reassess Your Charitable Receipting Process: The Dos and Don’ts
DonorPerfect Community Conference 2023 DPCA session with speaker Mark Blumberg
How to Correctly Reassess Your Charitable Receipting Process: The Dos and Don’ts TranscriptPrint Transcript
Okay, welcome, everyone, to our session on the do’s and don’ts on receipts how to correctly reassess your charitable receiving process. I’m here today with Mark Blumberg, the owner of Blumberg professional corporation. He’s a charity lawyer based in Toronto with more Read More
Okay, welcome, everyone, to our session on the do’s and don’ts on receipts how to correctly reassess your charitable receiving process. I’m here today with Mark Blumberg, the owner of Blumberg professional corporation. He’s a charity lawyer based in Toronto with more than 25 years of experience in legal compliance and other issues relating to nonprofits, registered charities and philanthropy in Canada and abroad. Mark has written and lectured extensively on these topics and created the largest portal of data on the Canadian charity sector. He currently serves as an editor for the Canadian charity, law blog and smart Giving Initiative, which provides information for due diligence when selecting charities. Before we get started, here are a few housekeeping items. The sessions are all recorded. Handouts in slides can be found on the right side hand side under details, files and documents for downloading. And if you want additional information about this session, please take the poll on the side and simply say yes, and then you’ll get additional information. So you can also ask questions in the q&a. And we’re gonna have some time at the end to ask Marshalls question. So there you go.
Thank you very much, Sara. So I’m going to talk about charity, charitable receiving the do’s and don’ts. And as Sarah mentioned, I just work really in the area of nonprofit and charity law. And we have a few websites, if any of you are interested. There’s a lot of information on receding at Canadian charity law.ca, which is our blog, lots of CRA letters about how they provoke charities for receding problems that can be quite interesting to read. And then charity data has a lot of material on which charities are issuing, what receipts and things like that. And if you want our contact information that’s there. So I put in a slide here, just the charities Directorate of CRA. When it comes to receiving issues, they’re the main regulator. So in some cases, they have information on their website that can be helpful. You can also call them they have an 800 number, and things like that. They tend to be on certain issues better certain issues not so good. Receiving, they tend to be a bit better at dealing with receiving issues. But it really depends on the quality of the question you’re asking and the amount of information you give and that they can digest. So in other words, you can’t just go with an 800 number on a complicated issue and think that what they tell you is necessarily going to be right. So just keep that in mind. So but there’s definitely a place for recording CRA to ask questions and things like that. So this is legal information, not legal advice, because I don’t know the individual organizations, necessarily, and it’s not customized to that the views expressed are my own. And I’m happy to take questions if you put them in the q&a box. And we’ll go for about 45 minutes or so. And then we can deal with some questions. So very basic stuff. registered charities are regulated by the charities Directorate of the Canada Revenue Agency. registered charities fall under both federal and provincial jurisdiction. So because of the Income Tax Act, it’s federal, but the constitution provides for provincial jurisdiction, there are some cases on it, they both can be involved with regulating this this area, nonprofits, which are not charities and registered charities, they’re both tax exempt. So it’s just important to keep in mind, that’s a tremendous similarity. The big difference between a registered charity and the nonprofit is this idea of issuing an official donation receipt with the income tax savings that go along with that. And I always tell people before they become a charity, you know, there’s benefits of being a charity. Of course, we all know that. But there’s huge restrictions that go along with it as well. So be careful. And just keep that in mind. It’s not always a good idea to become a charity. So why do we issue these receipts? It can offset federal and provincial income tax, how much depends on the person and their tax situation. But you know, it also depends on you know, what province they’re in, and the type of property they’re giving. So it’s different difference cash versus, say marketable securities and things like that. You can also if you gave a very large donation and you had less, not too much income, you can carry it forward for the next five years. You can’t eliminate 100% of income, generally speaking, unless you’re talking in a state situation, but you can eliminate up to 75% of your net income each year, which is very, very generous system. I would say Canada has in total, the most generous system by far, which also then creates certain problems where people try to take advantage of it and then the regulator has to get involved. So one thing that’s important does a charity have to issue receipts? No, it doesn’t. There are charities that don’t issue receipts, or more importantly, many charities will have policies as to when they will Amongst issue receipts, but it’s important that if you’re not going to issue receipts for all gifts, you get that you have a policy on it. So it might be that you have that we don’t issue receipts for under $20, or $50. Or we only issue receipts for cash or, you know, marketable securities, we don’t issue receipts for other gifting kind, it’s completely up to the charity, just have a policy, let the public know whether it is because you don’t want people to be disappointed later. And the mantra that I tried to suggest to people to think about is, if in doubt, don’t proceed. So if you’re not sure that it’s appropriate to issue a receipt, do not issue the receipt, there’s many times the charities will get very valuable things from people, but they’re not receivable. Okay. So if in doubt, don’t receipt, I feel like some charities unfortunately, they’re like, unless we’re absolutely certain it’s illegal, we’ll issue the receipt. And that’s definitely the wrong approach. This is something that CRA really takes very seriously. And they find a lot of mistakes are made by charities. The last time I think CRA looked at it about when they were doing audits of charities, about 89% of them were making mistakes with receding. Now, that doesn’t mean that all mistakes are the same. There’s more minor mistakes and very, very bad mistakes. But I’m just pointing out that very few organizations are receding completely correctly. And if you think that probably, you know, five or 10% of charities are not even issuing receipts, it means that when CRA is auditing groups, almost all of them are having some issues receiving. So how much is a donation receipt for it’s what they now call the eligible amount of a gift. And that’s what you’re using for official donation purposes. So you’re looking at what was the gift, what was the advantage or benefit received by the donor are those related to the donor, and then you subtract that and you basically work out the eligible amount of the gift. And a gift is a old concept. It’s complicated, but it has essentially four parts that are all required. So for something to be a gift, and we’re talking here, not a gift in the colloquial sense, like I gave my mom a gift on her birthday, I’m talking about a gift under the Income Tax Act. So when current look at case law relating to family law, and all this stuff, which is provincial jurisdiction and individuals, it’s a gift under the Income Tax Act to a charity, what is the requirements, it’s that it’s voluntary transfer of property with donative intent, and there’s four pieces there, it has to be voluntary given of your own free will not compelled not court ordered things like that, it has to be a transfer from a donor to a charity or qualified donee and has to be a complete transfer. So you know, if you take a car, and you give it to a charity, you give them the keys, that is not a complete transfer, complete transfer would also be signing over the papers, etc, making sure that the charity has the entity thing and can actually sell the car, get rid of the car, etc, itself, okay? It has to be property that’s cash up gifts in kind, but not services. So like I said, a lot of times people give things that are very valuable to a charity, but they may not be receivable. And then the last part is donated intent on the part of the donor. So there can be an advantage. But if the advantage is, you know, greater than 80%, then generally speaking, CRA is not going to accept that that is a gift. So for example, if someone pays 100 bucks, and buys a book, sorry, gives a donation of 100 bucks, but gets a book for $90, then the CRA says that’s not a gift, that is just a basically a purchase of a book. Now, mandatory elements on receipts, here’s a few slides that have these mandatory elements, I still see charities that sometimes I’m missing the mandatory elements, sometimes using a system is good because then it’ll capture the more likely to capture the mandatory elements. But very important to make sure if you ever you’re shooting receipt, in whatever way you’re doing it that it always has the necessary elements in it, okay. And if it’s gifts in kind, then they can be other elements that need to be included as well. And you can look on the CRA website they have four sample receipts, whether it’s cash or non cash gift, and whether there’s advantages or not advantages. And we also have a receding kit which might be more helpful in this regard because you can actually cut and paste with the CRA has a graphic so you can’t really cut and paste the the the actual text but in our receiving kit, it actually has the actual text. So if you ever need to do that, but if you’re using a system that issues the receipts, you won’t have to worry about this. Some groups use both. They do start manually sometimes and they use a system. So very important. If it doesn’t meet the requirements of being a gift, you can’t issue a receipt for it. Now, here I’m going to give you a whole bunch of just particular examples of when you wouldn’t issue a receipt. So one of them is you cannot determine the value of either the donation or the benefit or the advantage. Okay? So if you can’t you get something, it’s a vase, you can’t tell if it’s $1,000 or $5,000, whatever, you wouldn’t be able to. If you can’t determine it, then you can’t issue a receipt. The same thing for benefits advantages things that the charity gives back. So don’t give back things that have real value that you can’t really work out exactly what the value is because it could create a problem for receipt. Donation of services, donated time labor skills to a charity, or loans of property use of timeshare or leased premises, these are all considered services, they’re not suitable, generally speaking, in some cases, one can do a check exchange. And we might talk about that a little bit later. But in most cases, a check exchange is not actually that helpful, because it actually increases the amount of tax a person has to pay. And then the receipt just reduces it back to where it was. So it’s not really that helpful. And in some cases, these check exchanges can inflate your Admin and Fundraising costs and other things. So think about it carefully. But just generally speaking, and I think most people understand that if I go and volunteer at a food bank for an hour, I’m not going to get an official donation receipts at the end of that activity.
So same with loans of property. So if you have a flood in your basement of your church, and someone lends you a pump, that’s extraordinarily valuable, but it’s not receivable. If they say we don’t need this pump anymore, we’ll donate it to you, then maybe you can issue them a receipt if you can work out the fair market value of the pump, okay? If the donation is intended for another organization is not a registered charity or qualified donee, it’s called lending your registration. And you can be revoked for that. And they brought in last June, some more significant rules on what school directed donations, where, if it’s implicit, or explicitly that you’re getting funds that are going to come to you as quote unquote, a gift, but then you’re going to have to give it to a non qualified donee, your charity can be revoked for that. So many groups should really be looking at their policies on the types of gifts a receipt or, and the types of gifts they receive and what they’re prepared to do with gifts, etc. Okay, tuition, just keep in mind that generally speaking, you don’t issue receipts for tuition, except in the case of these religious schools. There is a circular information circular 7523. That allows for in some cases, receipts to be issued. You don’t issue receipts for sponsorship. And this is commonly a problem. People often don’t know who is the donor? Is it a business? Is it an individual, it’s important to know but if it’s a business and they’re getting recognition, that would be sponsorship, and you wouldn’t really generally be issuing the receipt, gifts of promises or pledges, things like that you wouldn’t issue a receipt as well. So if someone promises to give you a million dollars next year, when you get the money, then you can issue the receipt. Things like gift certificates, there are special rules that CRA has in dealing with that basic fees for an event or payment for a program. Also, you would not issue a receipt for that. Membership fees, in some cases can be receipted. But it depends on whether because you’re a member you get material value. And if it is you have to work out what that material value isn’t subtracted. And if it exceeds 80% of the payment, you can’t issue a receipt so many organizations work hard to make sure that their members only get what are considered not material value benefits so they can issue a receipt for that. lottery tickets and gambling generally wouldn’t be any issuing any receipts. purchases of goods or services from the charity charity sell billions and billions of dollars worth of stuff. And you it’s just a sale, you’re not generally speaking going to be issuing receipt. Anytime the fair market value of the advantage or the benefit the person the donor or those related to the donor are getting, if it’s over 80% You wouldn’t be issuing a receipt. If you’re giving funds or gifting kind from another qualified donee. So let’s say a charity is giving you or charity a gift of $100,000 or a car. You wouldn’t issue an official donation receipt you don’t issue official donation receipts from one charity to another or one qualified donate to another. If you cannot determine the true name of the donor, then you can’t issue receipt. This comes up in many instances, but for example, sometimes a business say a company will send a donation, say a million dollars and it’s from the company check of the company but then the President says you should issue me a receipt because it’s actually my money it’s not the company’s money. So then there’s a whole process you can follow in terms of getting a letter on the company’s letterhead with a company says that this is actually money that is belongs to the you know this individual and the receipt should be made up to the individual and all that. And there’s other circumstances where a letter like that can be helpful, and then it’s okay to issue a receipt Eat. But if it’s not, if you don’t have that sort of documentation, you can’t issue a receipt it is uncertainty about it. Generally speaking, if you’re trying to give money to a charity, but you say it has to be for a specific person, or family, things like that, then it’s usually not receivable. And so here’s just a slide on services and check exchanges. As I said, in most cases, you don’t want to do a check exchange, it’s not actually beneficial from a tax point of view. And it can make your numbers look worse. So generally speaking, don’t want to do it. Split proceeding is this concept that you’re all aware of where basically, you look at what the advantages a person’s getting, if they’re getting an advantage. And if it meets certain criteria, you subtract that advantage, and all that. And those rules have been around for now, over 20 years. And it’s important to just keep that in mind. So advantages are very broad, every few months, I ran into another person who thinks they’ve come up with another very valuable thing that a donor can get, but that it’s not going to be considered an advantage. And, you know, good luck to them. But really the unlike a gift, which has to be property, advantages can be property, but they can also be the use or enjoyment of property, the provision of services and certain other benefits. So basically, anything pretty much that has some material value benefit is going to be considered an advantage. And to determine the value of the advantage, it’s what the donor may receive in return for his or her donation, for example, food at a gala dinner, it’s may receive. So if they happen to have just eaten before they come and then are hungry and they don’t eat, they don’t get a bigger receipt, it was they could have eaten, if they wish to. Okay, and so you work out the fair market value of things. And then you subtracted from the amount of the gift in some cases with certain things like golf tournaments. Now, I think in Toronto, in many cases, no receipts are being issued. Because the advantages are so great that people are getting that there’s, you know, it could be a very small receipt. So the group just says forget it, we’re not going to issue any receipts. And so basically, just keep in mind that it’s very important to work out the advantage, okay, because, for example, that affects the issue of donative intent. If it’s over 80%, then you can’t issue a receipt. If it’s less than 80% 80% or less, then you basically would be able to issue the receipt. Now there’s something called a nominal or de minimis advantage, a very small advantage, that in some cases you can ignore. So if the advantage is the lesser of $75 and 10% of the value of the donation, then it would be this nominal advantage, and you wouldn’t need to take it into account. Okay. If you can’t determine the fair market value of the advantage, then you can’t issue a receipt. In the same way, if you can’t determine the value of the item that was given to you, you cannot issue a receipt. meals at events like meals. So we think about this CRA has guidance, they suggest that the fair market value of a meal at a fundraising dinner is a cost of a comparable meal provided by a comparable facility. So if it’s a restaurant, what is the regular price a customer would pay, if it’s a banquet facility, then you use group or banquet rates. Now, if the meal is donated to the charity, let’s say it’s at a country club, and the country club wants to support the charity and they’re not charging them anything and all that it’s still an advantage and does not change the amount of the advantage, the advantage is still received by the donor. So the fact that the charity paid nothing for it doesn’t really affect the the calculation that you’re going to make. In that case, of course, it’s wonderful if you can get stuff for nothing for the charity, but it doesn’t matter the person’s getting the same advantage. lottery tickets, gaming, all that stuff. As I mentioned, it’s not going to be receivable, membership fees we talked about this is just more information on it. Generally, certain things are not considered
to be having material advantage. So here’s an example of you know, if you get a subscription to the charities quarterly newsletter, which is otherwise available free of charge, like on the website of the charity, that wouldn’t be considered an advantage, the right to attend annual meetings and vote at the annual meetings is not considered an advantage, right. So things like that advance invitation to certain performances. So you have to pay for them still, but you just are told you know, two days before other people so you can book your tickets earlier, CRA doesn’t consider that to be an advantage, things like that. Okay. And then there’s other things where if you gave them they would definitely be considered valuable etc. So complimentary items of value provided to the member. You know, if it’s more than that, you know, 10%, the lesser of 10% or $75. Then you need to take into account a discount on products or services offered by I charity parking vouchers, burial plot discounts. Some of these may seem weird, but like burial plot discounts, one group got like a $500,000 penalty assessed against them because of burial plot discounts. But essentially anything that has value that members are getting if it’s considered material value, and it’s not minimis than it needs to be subtracted. And the other thing is sometimes just be careful with benefits generally speaking, and advantages because if you can’t determine that, you will end up in a situation where you won’t be able to issue any receipt whatsoever. Okay, so why is fair market value important. So it’s important for valuing any gift and kind gifts that you get. So if someone donates a table to you, you know, a very nice table for your boardroom or something, it could be valuable. And you would need to use fair market that you also advantageous when you’re giving stuff back, you need to work out the fair market value of what you’re giving back if you’re giving an advantage, okay. And as we said, If you can’t determine either the value of the gift or the advantage, you can’t issue a receipt, the onus is on the charity to determine. And there’s major consequences for mistakes. And this, I think, is a bit different that I’m not going to talk about the US system, but so much, but really, they have a very different system in the States. And And so really, the onus is on the charity to make sure they get it right. And if they don’t, the charity can get into a lot of trouble. So what is fair market value, it’s the highest price expressed in dollars, that 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 we’re acting independently of each other. That’s a lot of words. Unfortunately, some people just look at the first three words, the highest price, and that’s what they fixate on, and what is the highest price we could get for this car, you know, and 20 year old car. That’s not what it says it says the highest price and all these other things that you have to keep in mind. Okay, knowledgeable buyer, most people who buy cars are not knowledgeable. So it’s not What would someone pay for it? But why would a knowledgeable, informed prudent person pay acting independently of each other in an open and unrestricted market? What market? Are we talking retail, wholesale, you know, things like that. So it’s actually quite complicated often to work out fair market value. And lots of charities have had gotten in quite a bit of trouble because they’ve made mistakes in this area. Now, just to make it more complicated, it’s not just the normal determination of fair market value, that for example, a chartered business valuator, or someone can make me do a valuation. You also have these deemed fair market value rules where you have to look at the fair market value, so you got to do all the analysis you would normally do. But then also, in some cases, it’s the lesser of that, and the cost to the donor. So if the donor paid $50, for something, and then a week later, they donated to a charity, it might be the fair market value is the lower amount, maybe it’s gone down in value, the item that might be the items gone up tremendously in value, but then you the cost of acquisition would be the cost, okay? So this makes it even more complicated. So you have to think about collecting information when you’re doing and this is one of the reasons why you got to be very careful with gifts and kind. But basically, the rules are three here that are mentioned, when it comes to the deemed fair market values. One is tax shelter arrangement. Number two is the item was acquired less than three years before the time of the donation for any reason. And number three is that you acquired it 10 years, but the donor acquired it 10 years before the time, and one of their main purposes was to gift it to a qualified duty. Okay, the one that is most common that you’re dealing with is number two, someone acquire something within three years for any reason. So for example, they’re getting married, they end up getting three toasters. You know, you don’t need three toasters, maybe keep one extra and then you give one to the charity. So they’ve acquired it, what was the cost of acquisition cost of acquisition was zero. So if what’s the fair market value of a toaster say this toaster is worth 50 bucks, but the acquisition cost is zero, you use the lesser zero, so you can’t issue them a receipt, okay? And if they don’t tell you that they got it for nothing. And when you don’t ask and you issue a receipt for 50 bucks CRA can invalidate the receipt which creates problems for you and the donor. So the long and the short of it is certainly with number two, this is the most common one, you know, when should be asking information questions around what when did they acquire something if it’s relevant, and and what did they pay for it and things like that? Okay. And again, if you can’t work out some of these things, the answer is you can’t issue a receipt. People mustn’t feel bad about not issuing receipts, charities get given large amounts of stuff that are not preceded. Some organizations receipt almost nothing, for example, that comes as gifts in kind, okay, so I think it’s just very important to realize it’s a lot of work to do it properly. And sometimes the best policy is to just say, for example, if gifts in kind, you could have a policy that says unless the thing is worth at least $5,000 And the CEO is approved that we don’t issue a receipt. So yeah, if it’s like going to be a $10,000 car, maybe you’ll issue receipt, you’ll go to the work, you’ll do all the stuff. But for other stuff, it’s just questionable whether the risk is worth it, but we’ll leave it to every charity to make their own choices. Now, some things if there’s an exemption from the the fair market value rules that I just mentioned, they don’t apply to basically a request, or something where a gift made as a consequence of the taxpayers death, they don’t apply to inventory that a company has. They don’t apply to real property situated in Canada. So that’s like real estate. But they do apply to real estate outside of Canada and Europe, US etc. They don’t apply to gifts of cultural property, which has its own special regime, except when the cultural property is part of the tax shelters, and they do apply. And they most importantly, don’t apply to gifts of certain publicly traded securities. So when someone’s donating publicly traded securities, you don’t need to look at what did they buy them for? You just look at usually, especially if it’s not thinly traded public securities, you would look at what is the closing price on the day that the donation took place? Okay. So these rules are essentially that when a deemed fair market value situation is there, you’re looking not at fair market value, but the lesser of fair market value and the cost of acquisition. And these are some exemptions or exceptions, if you will, to the witness would apply, okay. And if you don’t get it, right, as I mentioned, CRA can deem the receipt to be no. So and that could be very painful for a lot of people take a stupid example. But if someone donates, let’s say they buy a $20 million Van Gogh painting, then two years later, they donate it to an art gallery. And it’s worth 22 million you worked out, you know, proper valuation, it’s at that time it was $22 million. So you know, you don’t know about the fair market value, you’re sure receipt for $22 million, CRA can basically say the whole receipt is nil, then what happens? Probably, there’ll be a lawsuit, the charity gets sued. And, you know, there’s a lot of problems. So basically, this is the sort of stuff you’ve just got to be careful about. Okay. And I mentioned, there’s three different scenarios, the most common is that it was donated within the last three years for any reason. But the third one is also common, which is that it was acquired by someone with the purpose of donating it to a charity within the last 10 years. Okay, and the tax shelter one unfortunately, also is a little bit common, but less likely that your charity is going to be involved with something like that. So an example of a more normal deemed fair market value situation person buys a piece of art for 500 bucks, six months later, the art is valued at $1,000. But as it’s a gift, within three years, you can only issue a tax receipt for $500. If they don’t know, doesn’t tell you that they bought it for 500. Or you don’t ask you don’t know. And you issue the receipt CRA can say that it’s zero. Okay, so the answer is, in many cases, this is sort of a hard rule to try and stop people from these schemes, where I buy a print in the morning for $10. By the afternoon, that thing’s worth $10,000 According to some valuation, these were quite common less so today. But this is why these rules are in place. In many cases, a person would be better off to just sell the item, and then take the cash and donate it to the charity.
Gifts in kind, although they are only a small part of receipting are probably most of the problems that I see with receiving. And so be careful about receiving gifts in kind. The first thing is, the question is should you take something if something’s garbage, you might not want it to be given to you to begin with, irrespective of receiving that. So the first issue is do you want the item? And can you use it or sell it or do something with it useful? The second issue is can you receipt for it? And that’s a policy issue in some cases. Because often, if you can run through the rigmarole and do all this stuff, work out fair market value work out the deemed fair market value rules, you may be able to issue a receipt, but is it something that you should do there can be significant legal and ethical issues when it comes to some of these items. So in many cases, it’s best to just decline offers of gifting kind and there’s nothing wrong with doing it. You don’t want to accept a old yacht, you know that worth $5,000. But that is you know, tied up at the marina and has a bill attached to it of $25,000. So, you know, you really want to be careful that you don’t take on things that are actually going to cost you a lot of money. So some questions, you know, is it this donation for your mission? So if you’re just a normal charity, you know, fine art is not what you need. And maybe if you’re an art gallery, it is. Is the product appropriate? Do you have policies on those gifting kind donations? Also look at things like why fees are charged because sometimes They say, Oh, we’re gonna give it to you. It’s a donation, but you just have to pay some fees. And you think, Oh, it’s just a small fee, but their fee is actually greater than really the value of the item. And also not beyond the receiving thing, it just gets into the whole issue of what are you putting in your financial statements, some groups have used the idea of gifts in kind to inflate their revenue and expenditures and things, unfortunately. So in terms of appraisals, and trying to work out fair market value, CRA would say, if you have a gift, say under $1,000, then someone affiliated from the charity with sufficient knowledge may determine the value. Okay, if it’s over 1000, then CRA recommends that a professional appraisal by third party who’s knowledgeable about the specific marketplace, and not associated with either the charity or the donor, so an independent person, and oftentimes CRA finds that these people are not independent, they’re busy doing consulting for the donor at the same time as they’re issuing these opinions, and then CRA is not going to take them very seriously. If the appraisals you know, they should include the name and address of the appraiser on the official donation receipt, if you have such an appraisal, okay. So you know, if you’re a hospital and you receive medical devices or something, and you know, sometimes you might decide that you want to have a program like that, that might make sense. And then smaller stuff you would deal with under 1000, internally, and you have a lot of expertise and knowledge about it, then it could work out and it could be appropriate. And when it’s over that amount when it’s large amounts, larger amounts than that. Even sometimes I’ll tell a client that just for the certainty of if you want to get an independent valuation, even if it’s under 1000, if it’s something where it’s questionable, and that sort of thing. But like I said, the best thing is to have good policies. So it’s not about just this donor, Oh, you don’t like the donor or they don’t think you’d like them. So then the answer’s no, no, it should be policy based. When when you issue receipts, and you shouldn’t be issuing receipts for everything you get, or you’re going to create tremendous potential risk for your charity. In some cases, you may need more than one appraisal. So for example, if you’re going to be taking on some complicated real estate donation, it may be a good idea to get more than one appraisal. It’s the responsibility of the charity to determine the fair market value. There are many court cases and they are just generally not accepting exaggerated appraisals that are out there. So it’s something far too many cases on this in court. And these cases, just so you know, can take in some cases 10 or 20 years to be resolved. That’s a lot of time to be worrying and spending money on legal fees and things like that. gifts under $1,000. Without evaluation, we talked about that you should still keep the supporting documents, etc. In your books and records. Okay. So now let’s talk about when receipts should be issued. So there’s basically no requirement to issue receipts. And so you never have to ever issue receipts. If you tell people, we don’t issue receipts, you don’t have to ever issue them. But if you are going to issue them, CRA generally recommends that with individuals for example, you try to get them out by the end of February, for the previous year. So the donor has time to get the receipt and put it on their tax return, etc. Okay, with gifts in kind, so non cash gifts, you need a separate receipt for each donation. So each if you will date different day, if you’ve got a chair given to you every month, you would need to have say 12 receipts for that with cash like monthly donors giving you cash, you can do one cumulative gift for the whole year. Okay, so just keep in mind that difference, that with gifts in kind. And now you can sometimes put gifts in kind together like it’s a tea set could be one set. So it’s multiple items, but it’s all has to come on the same day. Because the fair market value of things is determined on a daily basis. And then what happens if you made a mistake on a receipt or lost, you know, receipts and things like that. So if it’s a last receipt, the registered charity can issue a replacement, which contains all the required information. The replacement receipt should say it cancels and replaces the last receipt, the charities copy of the last receipt should be kept in Mark cancelled, okay. And most of the CRA advice you’re gonna get, which is consistent with this is very much based on the old conception of you have a receipt book, it’s pre printed, it sets everything out. And you want to keep track of all that stuff. Now it’s a little bit different. But like I’ll give an example a donor comes to you in you know, February and says in December, I gave you money. And you know, you gave me a receipt and I just can’t find it. I think it might have gone into spam or something like that. If you’ve got that receipt on your system, and you can just re email the email that was sent to the person then I don’t think you really need to go through this. You know, it’s this is more like when you have a physical receipt book with a number and you need to replace that receipt and I think you need to do that. And certainly if there’s a soiled receipt, if there’s a mistake on a receipt, you made a mistake, then you need to replace it and you need to, if they use original receipts, get them back and issue new ones and mark them cancelled etc, etc. But you’ve got to make sure that you’re you’re dealing with it appropriately have good books and records and make sure that everything is in order, you can have multiple series of numbers, you know, so if you’re doing stuff online, it could be series that starts off with, you know, 20,000, and then the number. And if you’re doing it in, you know, I hand or something, you could do it differently, but they have to be sequential. So each series needs to be sequential. And if you’re ever missing a number, for some reason, you need to notice why there’s a number missing, you can’t have just a whole bunch of blanks there because CRA wants to check that, okay. Now computer generated receipts, as is often now the case, much of your groups are using, you know, books and things like that they’re doing it. And so it has to be legible. And it has to be protected from tampering. If you use a computer to access a system you’re using, make sure that it’s password protected. I mean, it’s pretty basic. But some people don’t password protect computers, and that would be a big no no for CRA. Also, if you’re, for example, using an Excel spreadsheet to prepare something, then, you know, burn a copy of that, you know, make a CD or something or some sort of copy of it that can’t be changed or erased or anything like that. Because you know, if you have like an Excel spreadsheet, every time you updated, you know, it knows it’s been updated has been modified. But if someone goes back in time, like a year ago, and just changes a receipt, and you keep on updating and updating and updating, you might not know someone has changed something and then you go back to your books and records to try and work out. When CRA calls you to this donor make a $10,000 donation this donor from another part of the country who’s never had anything to do with your charity, you don’t want to find that there’s listed a $10,000 donation that actually worked was sent out was was different, okay, so you want to just create a copy of that. And that’s only relevant if you’re doing something like an Excel spreadsheet or something of that sort. And that hardcopy must be printable upon request. And, and I still see charities, I find that amazing, they do things like this, but they’ll send by like just a simple word document. The the receipt, it should be in some sort of read print only non editable format. I mean, I know people can take things even PDFs, and sometimes they can export them and they can do things or they can scan etc. But you don’t want to make it too easy for them to commit fraud. Okay, gift certificates, just some slides on dealing with gift certificates. It’s confusing to some people, because if a company gives you a gift certificate, you wouldn’t issue them a receipt. But if an individual goes and buys, say, at a pharmacy, a gift certificate that can be used by a charity and donates that gift certificate, so they paid real money for it, then you could issue a receipt and you just got to make sure you’re following the rules, they’re the name of the donor we talked about. And that sometimes is an issue. Not is the person walking in with the cash is not always the donor. So sometimes you have to ask a few questions and make sure that you are working out who the correct donor is. If you have spouses that are donating, then you can do the receipt to it can be either spouse or both. The reality is they can only use it once. Usually they will use it on the the receipt could be for the spouse earning the most money because then they will get the property the biggest extra benefit
checks from a corporation that you’re subsequently asked to issue an official donation receipt, this is pretty common. And you make sure that you get some sort of evidence that letter that are referred to earlier to document it. So you have it in your file. Okay, anytime there’s uncertainty, request a written declaration as to the identity of the true donor, to make sure that you’re making an appropriate receipt. And if you want to read it’s a little bit of an old report now that the Organisation for Economic Cooperation and Development wrote a report on abuse of charities for money laundering and tax evasion. and Canada was like by far the worst country that they looked at. So it’s a pretty big problem. I think we’d say it’s a bit better now than it was back then. But it’s just a bit shocking. And stuff. So if you do receipts incorrectly, there can be penalties. And sometimes they can be very significant penalties that can add up to a lot. And also you can get your registration revoked, you could be suspended you could there’s a lot of different things CRA can do. Depending on what you are, you’re doing inappropriately. Another thing that sometimes comes up is returning a gift. Generally you cannot return the gift, but sometimes you can. For example, if there was a condition agreed to and the condition hasn’t been fulfilled, in most cases, you shouldn’t be issuing a receipt if there’s a condition that hasn’t been fulfilled you wait until it’s been fulfilled in most cases, but you know, you speak to the CRA or an Ontario the Public Guardian and Trustee before it Turning a gift. There’s a large number of things to think about. The main thing is try to set yourself up for success that you’re not going to have these sorts of things happen. Have a good gift acceptance policy that sets out clearly what you will and won’t accept and things like that. Consider carefully. If it’s something that’s a more contentious gift as to whether you don’t just accept it, and then think about it. Think about it, it’s better to think about it sometimes. And, and before and just say no, rather than take it and then have to return it. Generally speaking, you shouldn’t be issuing an official donation receipt until there’s no conditions remaining. If you ever run into a situation where you’re being asked to return a gift, it is definitely a good idea at that point to get some legal advice, because to get the charity into a lot of trouble on multiple levels, okay? The main thing is to avoid having to ever return a gift is if you’re raising money for a restricted purpose, to build a wing on a hospital or to help with a disaster in a particular country, make sure you have what’s called a site pray clause or a secondary purpose clause or an amendment clause. So something like you know, this money will be spent on this disaster. But if we raise too much money, or we’re not able to implement the program properly in that country, the Board of Directors may reallocate this to something else, okay, if you have something like that, then you won’t have to recover all the money. But if you don’t have something like that, you could have a very bad situation where it’s going to be hard to find the people and you have to return the money auction sometimes come up as an issue. And basically, just keep in mind that there’s really two parts to an auction, there’s when a charity does a charity auction, there’s the people who donate stuff to the auction. And that’s sort of the normal process in terms of fair market value, and, and looking at the fair market value and those sorts of things. And generally, the successful bidder gets no receipt for the purchase, because generally they’re underpaying not even paying fair market value. The only time you can issue an official donation receipt for the purchaser is, if the fair market value can be determined, the value of the item is posted before the start of the auction, the successful bidder pays more than the fair market value, amount, and that it’s sufficiently more that exceeds the 80% of the purchase price. So you know, for example, if someone has $100 book, they pay 150 at auction, then they could probably get like a $50. receipt for that. But it has to be significantly more in many cases, you might just say no, you know what, we just don’t issue receipts for auctions, if you want to pay something for an auction to go ahead, but we don’t issue receipts is what many charities would just say, Okay? Donations or sponsorship often messed up. Very important if it’s a business and it’s or it’s a person running a business. And it’s basically, they’re getting some benefits like recognition for their business, it’s very different than recognition for an individual who’s not in business. So just look at the purpose, the source, the contract, you have the things like that, what is the value, generally speaking, if it’s a business, and there’s any recognition beyond just a mention in your annual report that, you know, these 6000 people gave you money and you listed in there anything beyond that pretty much you’re looking at, it shouldn’t be receipted, it can be you can send them a business acknowledgement or Thank you, they don’t really need it, because they will be deducting this as a business expense. Anyway, volunteer expenses is something that gets groups into a lot of trouble. So I’m just mentioning that Be very careful with volunteer expenses. Third party fundraising is often done, it’s great to have good systems that deal with it to avoid problems. So you know, also ask these sort of questions like when you’re doing receipts, who collects information, who prepares the receipts, who signs of receipts, who make sure they’re stored appropriately and that and just some quick thoughts on avoiding proper seating know the rules, we have a 200 page receding kit that’s available online, if you want to make use of that. And we have tons of resources on our Canadian Charity law.ca. We also have long courses on the seating and things like that, if it’s helpful. Make sure that anyone who’s involved in the whole process understands that even if they’re not issuing the receipt, but they’re doing just fundraising, they should understand how the system works because you don’t want someone to give you something and then you find out later that you’re not going to receive it it creates bad wills not good thing. Make sure all the mandatory fields are there. Make sure that the board is deciding if there’s complicated issues. Have a gift acceptance policy and follow through with it. Be careful with gifts, unkind and inflated valuations. Avoid any gifting tax shelters and fraud type situations, have good control over who prepares and signs receipts, have adequate books and records as with everything else, you have to have adequate books and records and obtain legal advice when necessary, of course era. And I mentioned we have a directory on the seating and we also have that proceeding kit if it’s helpful. We have courses on a whole bunch of other stuff if it’s ever of help. So questions we can definitely take a look at some questions. And Sarah, I don’t know if you want to decide what should be done here.
Well, there was a question here That’s about tax receipts for bequest can those be issued to the estate? Or do they need to be issued to the deceased donor?
Yeah, they would be issued a generally speaking to the estate. But there are times when you can’t issue receipts, it can be quite complicated. The rules were a little bit simpler in some ways less flexible, but simpler. Before 2016. Now they’re more complicated. And one needs to look at it carefully what’s going on here? And, and, yeah, there’s all sorts of things that one has to keep in mind when it comes to the quests.
There was also a few questions about emails, when you were talking about when it’s an email, you could potentially just resend the same email again. Can you just talk about that again?
Yeah, you know, do you want to put a copy on it? Or something like that? You know, yes, you could probably do that. But it just seems to me that all you’re doing is re forwarding the thing. What you want to, you know, when you think about it, is the person going to take the same receipt with the same via the same number of serial number and everything and put it on their tax return twice? I mean, if you email it to them five times, so they’re going to put it on five times? I don’t think so. Right. So it’s not a different receipt, it’s just the same receipt. It’s just there’s a technical glitch, they didn’t get it, or they lost it or something. So that’s my take on it, you can call CRA ask them if you have to deal with a situation if there’s a different approach. But I think most of CRA is guidance is really dealing with more these receding books. And you know, where there were serial serial numbers already printed and all that. And in that case, yeah, I think you’ve got to have to basically cancel, then you’re gonna have to do it again and send them a new receipt, and it’s a different receipt, this is the same receipt. If you want to put a copy on it, I don’t see a problem with it, but I’m not sure that it adds too much to it. Okay.
And the same idea, if a receipt was void, that was an email, is it sufficient to just save the email where you told the donor that this receipt is no longer valid? Because you can’t get it back? Technically? It exists in the web?
Yeah, you mean? Right. So yeah, what can you do? Like what where I’d be worried is if, for example, you issued a receipt, say, you know, what, what’s the mistake that was issued? Right? What is the mistake is that you say, $10,000, when it should be $1,000, then I would be more worried about the implications of that. And when would probably want to discuss with the donor and you may want to even in some cases, you might be that you want to alert CRA if you made a mistake like that. Because you don’t want someone claiming the $10,000 thing, okay. And so that would be less. So funnily enough, the old way of doing it with the little book is better. Because if you do get it back, then you know, you’re you’ve got it back, right. But we’re now in an electronic age, so we just have to try and deal with it. And I didn’t mention it. But if you do ever have to give back receipt, like someone, you receipt something and then you have to return the funds to some donor, then if it’s more than $50, you do need to report that to CRA. So this is where you’ve issued an official donation receipt. So charities need to watch out for that they have 30 days to report it to CRA. Okay.
Awesome. And what about this question? So what is the best way to define regular donor recognition like a plaque on the wall versus sponsorship recognition?
Well, the question is who is giving the donor the donor the if the donation of the sponsorship right, so let’s say it’s an individual, and you know, just say, a retired dentist, I don’t know. They give you $1,000, and you want to put a plaque on the wall. That would be I would say, probably a donation. And because they’re not, it’s not a business giving it to you, it probably be considered that this is not the CRA has a policy that, generally speaking, they don’t consider an individual making a donation to get some recognition that it has value. I don’t agree with the policy, but that’s their policy. And so therefore, you would generally say that, even if someone gave you a million dollars, and you put their name on the front of your building, if it’s just an individual, it’s not indelibly associated with business or it’s not a business, then you would basically be able to issue the million dollar receipt without any deduction. But if a business puts their name on the front of your building, the likelihood is cra would take the view that it’s probably much more valuable to the business. Like they’re getting a lot of advertising out of it. Let’s just put it that way. And it might be very hard to work out the thing and generally speaking, you wouldn’t want to issue a receipt on it anyway. So you would just basically they would deduct it. It’s an advertising business expense, they would get the deduction, they don’t need the receipt. And so you generally try to avoid issuing the receipt. Okay.
I know we had like other questions, but that’s about the time that we had today. I want to say thank you so much, Mark for coming and giving us this A wonderful presentation. Like I mentioned earlier, this slides with all the resources, all the links are available in that Details section for documents to download. And we’re going to have his follow up session tomorrow. We’re going to talk about how we can actually do receipts and DonorPerfect, basically. And there’s a lot of other sessions going on today. Tomorrow. I hope that you’re enjoying the conference and keep the conversation going. And thank you so much.