Will your receipts be your Achilles’ heel?

publication date: Mar 6, 2013
author/source: Adam Aptowitzer

In Greek mythology Achilles was a Greek hero of the Trojan War. Although mortal when born, the goddess Thetis tried to make him immortal by dipping him in the river Styx. Ostensibly to ensure he did not drown, she held him by the heel during the process - and so his heel was never submerged. Adam Aptowitzer photoAs a result, Achilles' heel was the only vulnerable spot on his body.

He eventually was killed when someone shot him there with an arrow. That tale gave us the term “Achilles’ Heel” to refer to a spot of particular vulnerability.

The story of Achilles comes to mind in thinking of the approach most charities take toward formatting their receipts. The recent case, Afovia v. The Queen, 2012 TCC 391, is the latest instance.

Tax shelter failed both structure and receipt requirements

Afovia was a case where the taxpayer in question had contributed to a charity through a leveraged donation tax shelter program. And, as is the case with so many other programs of the type, the Canada Revenue Agency disallowed the donation for reasons related to the structure of the program.

However, included in CRA’s list of reasons was that the charitable donation receipt itself did not meet the technical requirements of a receipt. This is a reference to the list included in Regulation 3501 of the Income Tax Act which states the following:

3501.  (1) Every official receipt issued by a registered organization shall contain a statement that it is an official receipt for income tax purposes and shall show clearly in such a manner that it cannot readily be altered,

    (a) the name and address in Canada of the organization as recorded with the Minister;

    (b) the registration number assigned by the Minister to the organization;

    (c) the serial number of the receipt;

    (d) the place or locality where the receipt was issued;

    (e) where the donation is a cash donation, the day on which or the year during which the donation was received;

    (e.1) where the donation is a gift of property other than cash

       (i) the day on which the donation was received,

       (ii) a brief description of the property, and

       (iii) the name and address of the appraiser of the property if an appraisal is done;

    (f) the day on which the receipt was issued where that day differs from the day referred to in paragraph (e) or  (e.1);

    (g) the name and address of the donor including, in the case of an individual, his first name and initial;

    (h) the amount that is

       (i) the amount of a cash donation, or

       (ii) where the donation is a gift of property other than cash, the amount that is the fair market value of the property at the time that the gift was made;

    (i) the signature, as provided in subsection (2) or (3), of a responsible individual who has been authorized by the organization to acknowledge donations; and

    (j) the name and Internet website of the Canada Revenue Agency.

Receipt flaw alone would have warranted revocation

That there was a defect in the receipts will not surprise anyone who works with charities on a regular basis. Neither is it surprising that the defect was cited as a reason for revocation, as the CRA routinely lists every infraction to support its decision to revoke.

But individual charities should pay attention to the fact that the judge found these defects themselves were sufficient grounds for disallowing the receipts. Presumably, had the charity been the appellant, the Court would have equally found that it justified revocation.

While the Charities Directorate does have guidelines which attempt to match the severity of the infraction with the punishment, technically any breach of the rules for a charity can result in its revocation. Yet as this case shows, if a charity finds itself in court, it could in theory win on the substantive question, and still lose its registration on the technical wording of its receipts.

Adam Aptowitzer of Drache Aptowitzer LLP is a charity law lawyer with a national practice based in Ottawa. He has been published in Canadian Taxpayer, Canadian Fundraising & Philanthropy and the Not-for-Profit News. He has also published a widely distributed study on the regulation of Canadian charities with the C.D. Howe Institute.

As a speaker, he has addressed many professional associations and Canadian charities. He has also given expert advice on Parliament Hill. Adam is an executive member of the Canadian Bar Association’s Charity and Not-for-Profit Law section.

For speaking engagements and consultations, contact him at 613-237-3300 or visit http://www.drache.ca.

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