On October 19, 2012, Canada Revenue Agency released a new guidance, titled CG-016 Consequences of Returning Donated Property (the “Guidance”), concerning the return of a gift to a donor. The Guidance relates to new provisions of the Income Tax Act (Canada) which were introduced with the 2011 federal budget on March 22, 2011 and reintroduced on June 6, 2011. The provisions came into effect on the date of the budget.
The amendments to the ITA clarified the tax consequences where a gift is returned to a donor and expanded CRA’s ability to reassess those donors. The Guidance provides further details regarding how CRA will apply these provisions and steps qualified donees, including registered charities, must take when returning donated property if the value of that returned property is greater than $50.
What and when to tell CRA
The Guidance states that qualified donees that have issued donation receipts for property (i.e., cash or gifts-in-kind, including donated art or other tangible goods), and have returned the property any time after March 21, 2011, must file an information return with CRA if the fair market value of the returned property is greater than $50. This information return must be filed within 90 days of the property being returned.
The property returned may be the same property that was donated, property that is identical to the donated property, or a substitute for the donated property (i.e., cash in lieu of a gift-in-kind).
No insights on whether to return gifts
The Guidance also states that it does not address the issue of whether or not a qualified donee can legally return a gift. This is because the return of a gift could still amount to breach of trust at common law or under provincial legislation and may result in personal liability for the directors or trustees.
Registered charities are also cautioned in the Guidance that they are generally not able to return a gift as CRA could consider the charity to be providing an undue benefit, or be found to be giving a gift to a non-qualified donee, which could result in sanctions up to and including the revocation of charitable status.
Given the risks for both the directors and the charity, it is recommended that the charity seek legal advice prior to returning donated property. However, in circumstances where it is permissible to return a gift, the Guidance sets out the content of the information return and provides a helpful sample information return for reference.
For a summary discussion on where it may be advisable to contact legal assistance in dealing with the return of charitable property, see this author’s September 2010 article.Ryan M. Prendergast is an associate practicing charity and not-for-profit law with Carters Professional Corporation, and can be reached at email@example.com.