Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Principal Issues: Can amounts collected by a charity and provided to a municipality that will be directed to a non-profit organization qualify as a gift for purposes of subsections 149.1(2), 149.1(3) and 149.1(4) of the Act?
Position: If a municipality is merely collecting funds from donors, including a charity, on behalf of an organization that is legally or otherwise entitled to the funds so donated, the municipality is not in receipt of a gift.
Reasons: Prior positions.
XXXXXXXXXX
Bob Naufal
2022-094522
February 1, 2023
We are writing in response to your request dated August 3, 2022, and our discussion on August 19, 2022 [Naufal/XXXXXXXXXX], wherein you requested our comments with respect to the receipt of funds by a qualified donee that is a municipality from a registered charity where such funds would then be directed to a non-qualified donee [NQD] recipient.
In your submission, you describe that a registered charity has proposed to assist a NQD in a fundraising campaign by collecting funds and issuing donation receipts on behalf of the NQD. The charity would donate the collected funds to a municipality and suggests that the municipality could provide the collected funds to the NQD, as part of a program of the municipality. You advise that such a program is not one that would falls within the mandate of the municipality.
Our comments
This technical interpretation provides general comments about the provisions of the Income Tax Act (Act) and related legislation. It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R12, Advance Income Tax Rulings and Technical Interpretations.
The Act does not contain specific rules relating to the use of funds by a municipality. There may, however, be restrictions on the use of municipal funds under provincial statutes (e.g., municipal acts) or municipal bylaws. You may wish to discuss with the municipality’s legal counsel, the application of municipal bylaws and statutes other than the Act to your situation.
In general terms, under the Act, a charity may be subject to revocation of its registered status if, among other things, the charity
- fails to expend amounts in any taxation year, on charitable activities carried on by the charity and by way of gifts made by it that are qualifying disbursements, the total of which is at least equal to the charity’s disbursement quota for that year; or
- makes a disbursement, other than
- a disbursement made in the course of charitable activities carried on by it, or
- a qualifying disbursement.
A qualifying disbursement of a charity is defined in subsection 149.1(1) of the Act and includes a disbursement by way of gift to a qualified donee. A “qualified donee” is defined in subsection 149.1(1) of the Act and includes a municipality in Canada that is registered by the Minister.
In addition, pursuant to subsections 149.1(4.3) and 168(1) of the Act, a municipality may be subject to revocation of its registered status if, among other things, the municipality
- ceased to comply with the requirements of the Act for its registration;
- issued a receipt for a gift otherwise than in accordance with the Act and the Income Tax Regulations or that contains false information.
Moreover, a registered charity may be subject to revocation of its registered status for the aforementioned reasons or if the registered charity accepts a gift the granting of which was expressly or implicitly conditional on the charity making a gift to another person, club, society, association or organization other than a qualified donee.
It is a question of fact whether a gift has been made to a qualified donee in a particular situation. It is our general view that donations can be received and receipted by a qualified donee such as a municipality provided the municipality retains discretion as to how the donated funds are to be spent. If a municipality is merely acting as a conduit, by collecting funds from donors, including a charity, on behalf of an organization that is legally or otherwise entitled to the funds so donated, the municipality is not in receipt of a gift.
We trust our comments will be of assistance.
Yours truly,
Bob Naufal
Manager
Financial Institutions Section
for Director
Financial Industries and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 2023
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 2023
Email this Content