A January 9, 2015 informal decision of the Tax Court of Canada (“TCC”) highlights the importance of proper recordkeeping and receipting with regard to the requirements of subsection 118.1(2) of the Income Tax Act (“ITA”) and Regulation 3501 of the Income Tax Regulations (“Regulations”). Subsection 118.1(2) sets out the requirements for an individual taxpayer to prove a gift was made and Regulation 3501 outlines what information must be contained in the receipt.

In Arthur v The Queen (“Arthur”), the taxpayer appealed the Minister’s reassessments which disallowed the charitable donation claims for the 2006, 2007, and 2008 tax years. The purported donations were made to three different organizations, two of which subsequently had their charitable registrations revoked. The third organization was not a registered charity. Justice Lamarre dismissed the claims for cash donations made in 2007 and 2008 because the taxpayer did not have receipts in accordance with subsection 118.1(2) of the ITA for the purported donations made in these years. Although the taxpayer had a receipt for the 2006 donation, purportedly describing a cash donation and a gift in kind, the TCC found the receipt did not contain all of the prescribed information required under Regulation 3501. As well, the taxpayer’s testimony with regard to the purported donations was unconvincing, as she could not remember the brand of computers donated, did not have appraisals made, and could not substantiate the cash donation.

Additional factors cited by the TCC in support of the dismissal of the taxpayer’s claims included:

• the taxpayer failing to meet the burden of providing support to verify cash transactions having been made;

• the money was given to the taxpayer’s accountant and she did not verify if it was passed on to the charity;

• no bank statements or other documentation in support of the cash donation was provided;

• the Minister presented evidence to show the total 2006 donation represented a substantial amount of the taxpayer’s income, i.e., 16 percent of her net income, yet was unsupported by adequate records; and

• the recipient charity did not have any books and records to support the taxpayer’s purported cash donation.

This decision illustrates the importance of proper receipting by registered charities and the taxpayer’s burden of being able to verify cash donations and substantiate gifts in kind. Further, the decision underscores the fact that a claim will not be allowed without proper receipts and supporting documentation.

Linsey E.C. Rains, B.A., J.D. - Called to the Ontario Bar in 2013, Ms. Rains joined Carters Ottawa office to practice charity and not-for-profit law with a focus on federal tax issues after more than a decade of employment with the Canada Revenue Agency (CRA). Having acquired considerable charity law experience as a Charities Officer, Senior Program Analyst, Technical Policy Advisor, and Policy Analyst with the CRA’s Charities Directorate, Ms. Rains completed her articles with the Department of Justice’s Tax Litigation Section and CRA Legal Services.