When CRA Knocks: Proving charitable donations

Authored by Nevena Urosevic, Associate Director of Legal Affairs

CCCC is aware that some of its members are being asked by donors to assist them in providing proof to the Canada Revenue Agency (“CRA”) for donations made, even though the charity has already provided the donor with an official receipt. Locating such proof can be challenging, especially where the donation made was a cash donation or a gift-in-kind or where a donor made multiple donations.

Two recent cases[i] from the Tax Court of Canada (the “Court”) address this issue and remind both charities and donors that requests for proof are not altogether unusual and that efforts should be made to document donations, above and beyond official receipts.

Both decisions were rendered by the same judge and both matters deal with the same charity, namely, Revival Time Ministries International (“Revival”), whose charitable status was revoked in 2011 due to fraudulent reporting to CRA.  In both decisions, the alleged donors were appealing the Minister of National Revenue’s (the “Minister”) reassessment of their charitable donations tax credits for 2007-2008 for the first appellant (“Mapish”) and 2009 for the second appellant (“Bope”) for donations allegedly made to Revival.

In the first case, Mapish claimed to have donated cash and clothing to Revival for a total value of of $9,600 and $11,600 for 2007 and 2008 respectively. These amounts equated to some 25% of Mapish’s income. The Minister initially accepted the charitable donations as declared, but later upon reassessment found that Mapish did not make any donations to Revival in 2007 and 2008. Furthermore, the Minister found that the official tax receipts issued by Revival were incomplete and therefore invalid.

The Court found that the law requires the existence of:

1. a gift
2. a complete donation receipt

In the case at bar, the judge found that neither of these two elements were proven, thereby upholding the Minister’s Decision.

In support of his decision, the judge cited s. 118.1(2) of the Income Tax Act:[ii]

“Proof of gift

(2) An eligible amount of a gift is not to be included in the total charitable gifts, total cultural gifts or total ecological gifts of an individual unless the making of the gift is evidenced by filing with the Minister

(a) a receipt for the gift that contains prescribed information;”

The judge further made reference to s. 3501.(1) of the Income Tax Regulations[iii] which sets out all of the information that must be included on an official receipt.[iv] Since it is imperative that all the information as set out in section 3501.(1) of the Income Tax Regulations be included on the official tax receipt, the absence of any one of these elements is enough for a donor’s tax credit to be denied, without further discussion and regardless of whether a charity was aware of the requirements or not or any other reason. All information must be clearly and meticulously stated on the official receipt.

In terms of proving the gift itself, the judge stated that such proof should be established on a balance of probabilities. This means that the alleged donor has to demonstrate that, in all likelihood, he or she made the donations in question. In Mapish, the court found Mapish’s testimony and Revival’s receipts were not enough in the circumstances. Mapish kept no record of his donations and his bank statements did not reflect any of Mapish’s alleged donations. He further could not provide any cheques, ATM withdrawal slips, or any envelope relating to the alleged donations.[v]

The second related decision, Bope, followed the same reasoning. With very similar factual details, the judge made a very similar decision to that of Mapish. The Court essentially found that the receipt that Revival provided to Bope was incomplete, and that this reason was itself enough to uphold the Minister’s reassessment. The judge added, however, that the further fact that Bope was unable to show any objective proof for his donations further affirms the Minister’s decision.[vi]

While these cases involve a charity whose status has been revoked on grounds of fraudulent activity and while the donors in these matters seem clearly to have engaged in such activity themselves, the cases are both informative and helpful to charities and donors in two ways:

1. The sort of egregious behavior demonstrated in these matters help us understand the types of challenges and abusive behavior that CRA is faced with, thus explaining the underlying reason for investigations undertaken by the CRA, whether targeted or at random; and
2. The cases alert us of a possible growing trend of CRA verification of donations and provide us with examples of the kinds of documents CRA would be looking for to substantiate claims of donations, e.g.:

• Donor or charity records of amounts and dates of donations made
• ATM withdrawal slips
• Bank statements which reflect donation amounts
• Envelopes related to donations
• Copies of cheques

In order to be ready if CRA comes knocking, asking for proof of charitable donations, charities should ensure that their receipts are complete, by including all of the information necessary on the receipts.[vii] Moreover, both charities and donors should keep records of donations to the best of their abilities, as well as any tangible proof that can be relied upon to show that any claimed amounts, especially substantial amounts, were in fact gifted from donor to charity.

References

[i] Mapish v. The Queen, 2015 CCI 122 (“Mapish”); Bope v. The Queen, 2015 CCI 120 (“Bope”). [Note: At the time this blog post was drafted, the decisions are only available in French]

[ii] R.S.C., 1985, c. 1 (5^th Supp.).

[iii] C.R.C., c. 945.

[iv] A comprehensive list of the information which must be included on an official tax receipt as well as an explanation of those elements and other important considerations in issuing official receipts can be found at Chapter 15 of our Charities Handbook.

[v] Mapish at paras. 20, 22-24.

[vi] Bope at para. 8.

[vii] See supra note iv.