Non-compliance issues

Lending registration numbers

A charity is responsible for all receipts issued under its name and registration number. It must account for the corresponding donations on its annual information return and in its books and records. Under no circumstances should a registered charity issue donation receipts on behalf of another organization or lend its registration number to another organization for receipting purposes. A charity that lends its registration number may have its receipting privileges suspended and/or lose its registered status.

Inadequate books and records

Keeping adequate books and records is essential to the sound financial management of a charity, builds trust with the donor community, and is necessary to maintain registered status. Adequate books and records allow the Canada Revenue Agency (CRA) to verify donations made to a charity and to ensure proper use of charitable resources. Inadequate books and records can range from minor oversights on the part of a charity, to very serious infractions, including records that are deliberately altered, destroyed, hidden, or not collected in order to conceal non-compliance.

For more information, go to Books and records.

Inflated receipt amounts

Issuing a donation receipt with a dollar amount that is in excess of what the charity has actually received as a gift may constitute an abuse of the tax system. However, issuing a donation receipt for an inflated amount is not always deliberate. For example, it can be difficult for a charity to establish the fair market value (FMV) of a non-cash gift. Charities should not rely solely on the donor to estimate the value of a donated item. The amount on the receipt should be the item’s FMV, and if the FMV cannot be determined, the charity should not issue a receipt.

For more information, go to Determining fair market value of non-cash gifts.

Receipts with inaccurate or missing information

Charities often issue receipts with inaccurate or missing information. For example, a charity may issue a receipt that fails to show the donor’s address. Charities must also be aware of the different requirements for receipts issued for cash gifts and non-cash gifts.

For more information, go to What information must appear on an official donation receipt from a registered charity? and Sample official donation receipts.

Abusive tax shelter gifting arrangements

An abusive tax shelter gifting arrangement typically promises individuals that are being asked to participate, tax savings greater than their cost to participate in the scheme, thus allowing them to profit from “donating” to a charity. Prominent examples of such schemes include buy-low, donate-high schemes, gifting trust arrangements, and leveraged cash donations.

The CRA has found many of these arrangements provide little or no benefit to the charities involved or to their intended beneficiaries. Instead, many of these arrangements exploit a registered charity’s receipting privileges for the private gain of promoters and participants.

The CRA has repeatedly warned registered charities against becoming involved in abusive tax shelter gifting arrangements. The CRA has ongoing and serious concerns about these abusive arrangements. Registered charities should be aware that participating in such arrangements can jeopardize their registered status or expose them to monetary penalties.

The CRA reviews all tax shelters to ensure that the tax benefits being advertised meet the requirements of the Income Tax Act. Although the CRA issues identification numbers to tax shelters, these numbers are for tracking purposes only and do not mean that the tax shelter transactions have been approved by the CRA as legitimate. An identification number allows the CRA to identify and track tax shelters and their investors but offers no guarantee that taxpayers will receive the advertised tax benefits. The CRA regularly audits such arrangements; it reassesses participants and disallows donations claimed. In many cases, the CRA has reduced the donation amount to no more than the cash paid by the taxpayer. When the donation is not a true gift, the CRA will reduce the claim to nil.

The CRA intends to challenge any arrangement that does not comply with the Act. Charities that knowingly exploit their tax-receipting privileges by participating in schemes that are abusive or fraudulent, or that fail to devote their resources to legitimate charitable activity, will be subject to revocation and/or significant monetary penalties. In addition to penalizing charities involved in these arrangements, the CRA may also apply penalties against those persons who promote such arrangements or who participate in the making of false statements to the CRA.

For more information, go to Tax shelters.

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