ISSUING CHARITABLE RECEIPTS
A registered charity cannot issue receipts for the following:
for contributions of services provided to the charity (services do not qualify as gifts);
on behalf of another organization or charity; or
in a name other than the name of the true donor.
An example of the first instance would be when an agreement to rent property is negotiated with a landlord who is prepared to charge less than fair market value in exchange for a receipt. Unfortunately, a landlord cannot receive a receipt for discounted or free rent. Provision of space is considered a service and, as noted above, services do not qualify as gifts under the Income Tax Act.
In cases where a landlord wishes to make a donation, the rental agreement should be established at fair market value, and the landlord should write a cheque back to the Army for any donation amount. Care should be taken to avoid referring to the planned donation in the rental agreement. To do so could be interpreted that the ‘donation’ was consideration for signing the agreement, which would nullify the donation as a charitable gift. If the donation is mentioned in the agreement at all, it should be very clear that it is a voluntary act on the part of the landlord that is ancillary to the agreement. The best approach is to avoid any reference to the donation in the agreement. Of course, this means that there is a risk that the landlord will default on his pledge to provide a donation. But this is the risk that we assume with all pledges.
The second situation can occur when we are asked to cooperate with another organization with a similar mission or programs as ours. In a number of cases, we have been asked to issue charitable receipts on behalf of other organizations that do not have charitable status and then turn the funds over to them to be administered. This contravenes the Income Tax Act. A registered charity may not issue receipts for gifts that it will allocate to other organizations to administer. No matter how benevolent or worthwhile the other organization’s activities may be, any funds diverted to it by a charity will represent a breach of charitable trust and place its registration in jeopardy.
The third case is the most frequently observed. This is when you receive a cheque from “John Doe”, but are asked to issue the receipt in the name of a third party who is a relative or friend. This is not permissible. To issue a receipt in the name of an individual or organization, the funds must have been received from that person or entity.
Ensuring that you do not issue receipts in these three situations will save you a lot of grief if you are subjected to a charity audit by the CRA.