When is a Gift a Gift?
When it is given, of course. But when does that happen? Legally
there are two elements to a gift: an intent to give and the transfer
of the property. For registered Canadian charities, the rules
relating to gifts are very important.
· Only a gift entitles the donor to a charitable receipt;
and
· Only the value of receipted income is included in the
calculation of the charity's disbursement quota.
Revenue Canada applies the following rules when dealing with
these matters.
To Give or Not To Give
Reflecting a large number of supporting court cases, Revenue
Canada takes the position that a gift is a voluntary transfer
of property without valuable consideration. In other words, other
than the issuing of a receipt, there is no value given for the
gift. Generally a cash gift is made if all three of these conditions
are met:
· some property - usually cash - is transferred by a donor
to a registered charity;
· the transfer is voluntary; and
· the transfer is made without expectation of return.
No benefit of any kind may be provided to the donor or to anyone
designated by the donor, except where the benefit is of nominal
value.
Where a charity offers an item, privilege or other benefit in
return for a donation, the benefit is generally considered to
have a nominal value where its fair market value does not exceed
$50.00, or 10% of the amount of the gift whichever is the smaller
number. The exceptions to this general rule first relate to tickets
for dances and banquets (LawNow December 1998/January 1999) and
then a series of sub-rules relating to annuities, insurance,
and tuition fees available from Revenue Canada or on the internet
at www.rc.gc.ca/charities/.
Related problems arise where a donor transfers something valuable
and imposes some conditions. One condition - the so called ten-year
rule - is provided for under the Income Tax Act definition
of Disbursement Quota. This rule allows the charity to give a
receipt but not include the value of the receipt in calculating
its disbursement quota for 10 years. Other kinds of conditions,
arising frequently in the museum community, create what are often
called conditional gifts or long term loans. Neither term has
a precise meaning. In each situation, the gift is either a trust
or not a gift at all.
So long as the property has transferred, the charity might be
agreeing to act as a trustee subject to enforceable restrictions.
(This was at the centre of the recent case in Ontario dealing
with the McMichael Gallery - where the Group of Seven paintings
were supposedly donated on trust conditions that they be displayed
in certain ways. It was held there were no trust conditions.)
On the other hand, the charity might not be receiving a transfer
in the property at all. The donor takes the position on the terms
of the arrangement that the donor is entitled to have the property
returned in specified circumstances at some future time. In that
case, the receipt should not be issued.
When Should A Receipt Be Issued?
Even where there is a true gift (an intention to make a gift
coupled with the transfer of property), Revenue Canada requires
the charity meet two conditions before a receipt is issued: the
charity must be registered with Revenue Canada and it must not
issue receipts for funds that the charity will not be directly
responsible for spending.
Once these two conditions are satisfied, the Income Tax Act,
by Regulation, requires that each official receipt that a charity
issues to acknowledge a donation must contain at least the following
information:
· a statement that it is an official receipt for income
tax purposes;
· the charity's registration number, name, and address
in Canada as recorded with Revenue Canada, Charities Division;
· the place or locality where the receipt was issued;
· the day on which or the year during which the donation
was received or, where property other than cash is received,
the actual date of receipt;
· the day on which the receipt was issued when it differs
from the date of the donation;
· amount of the gift; and
· the name and the address of the donor.
Every receipt must be prepared at least in duplicate because
the charity is required to keep a copy of every official receipt
issued on file. The receipt must be signed by an authorized person,
and, importantly, it must bear a unique serial number .
Where the donation is a gift of property other than cash, (called
a gift-in-kind) the fair market value of the property at the
time the gift was made, as well as the date of the gift, a description
of the property, and the name and address of the appraiser (if
any) of the property, is required. (See the current version of
IT-297, Gifts in Kind to Charity and Others ). On this last point,
the fair market value of a gift in kind as of the date of the
donation must be determined before the amount can be recorded
on the receipt. The person who determines the fair market value
of the property must be competent and qualified to evaluate the
particular property being transferred by way of a gift. Property
of little or only nominal value to the donor will not qualify
as a gift in kind. Used clothing of little value would be an
example of a non-qualifying contribution.
Like so much else in the world of charities, the rules about
gifts and receipts are complex. Charities should have current
copies of the relevant Interpretation Bulletins and Circulars.
At a minimum every charity should have a copy of the current
version of IT-110 - Gifts and Official Donation Receipts, currently
in its third revision. The best rule is that if there is any
question about a receipt, find out the answer before it is issued.
Cancelling a receipt can have serious consequences for both the
charity and the donor.
Laird Hunter is a lawyer with the firm of Worton Hunter &
Callaghan in Edmonton, Alberta.
