2006 Ruling 2005-0159771R3 - Employee Donations

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: Whether a Charity can issue tax receipts for donations received from its employees to a donor-supported fund the purpose of which is to further the professional development of the employees of the Charity.

Position: Yes.

Reasons: Based on the particular facts, the proposed employee donation policy and the proposed guidelines for the disbursement of funds from the donor-supported fund.

XXXXXXXXXX 								2005-015977

XXXXXXXXXX, 2006

Dear XXXXXXXXXX:

Re: Advance Income Tax Ruling Request
XXXXXXXXXX

This is in reply to your letter of XXXXXXXXXX in which you requested an advance income tax ruling on behalf of the above named taxpayer. We also acknowledge the information provided in subsequent correspondence and during our various telephone conversations in connection with your request (XXXXXXXXXX).

We understand that, to the best of your knowledge and that of the taxpayer involved, none of the issues involved in the ruling request:

(i) is in an earlier return of the taxpayer or a related person;

(ii) is being considered by a Tax Services Office or Taxation Centre in connection with a previously filed tax return of the taxpayer or a related person;

(iii) is under objection by the taxpayer or a related person;

(iv) is before the courts or, if a judgment has been issued, the time limit for appeal to a higher court has not expired; or

(v) is the subject of a ruling previously issued to the taxpayer by the Directorate.

Unless otherwise stated, all references to a statute are to the Income Tax Act R.S.C. 1985, 5th Supplement, c.1, as amended, (the "Act") and all terms and conditions used herein that are defined in the Act have the meaning given in such definition unless otherwise indicated.

Our understanding of the relevant definitions, the facts, proposed transactions and the purpose of the proposed transactions is as follows:

Definitions

a) "Charity" means XXXXXXXXXX,

b) "CRA" means the Canada Revenue Agency,

c) "Department" means the XXXXXXXXXX of the Charity,

d) "Development Funds" means the X Fund, the Y Fund and the Z Fund,

e) "Guidelines" means the Guidelines for the X Fund,

f) "Policy" means the XXXXXXXXXX,

g) "Program" means the XXXXXXXXXX,

h) "X Fund" means the XXXXXXXXXX,

i) "Y Fund" means the XXXXXXXXXX, and

j) "Z Fund" means the XXXXXXXXXX.

Facts

1) The Charity is a XXXXXXXXXX. It is a "charitable organization" within the meaning of subsection 149.1(1). It is located at XXXXXXXXXX and its charitable registration number is XXXXXXXXXX.

2) The Charity is governed by a board of XXXXXXXXXX members who are appointed by the XXXXXXXXXX.

3) The Charity provides programs and services primarily in XXXXXXXXXX. Its mission is to provide quality educational programs and services which enable adults to continue their education, to improve their employment opportunities, and to enhance their quality of life.

4) The Charity accepts donations from individuals and corporations. Donors to the Charity may direct that their donations be applied to particular funds which support specific projects or programs administered by the Charity. Like all donors, employees of the Charity have the option of directing their donations toward one or more of the Charity's funds. Donors can choose from the following funds:

XXXXXXXXXX

5) The Development Funds fund professional development programs for employees of the Charity. They are intended to benefit the Charity, and the educational purposes it serves, by helping fund further education and upgrade programs for Charity employees. The purpose of the X Fund and the Y Fund is to assist staff in achieving their professional credentials or designation. The purpose of the Z Fund is to help fund courses that apply to a degree program in the XXXXXXXXXX career field.

6) The balances of the Development Funds as of XXXXXXXXXX were:

a) X Fund - principal of $XXXXXXXXXX and interest as of XXXXXXXXXX of $XXXXXXXXXX;

b) Y Fund - nil; and

c) Z Fund - principal of $XXXXXXXXXX and interest as of XXXXXXXXXX of $XXXXXXXXXX.

7) No monies have yet been disbursed from the Development Funds. The Development Funds are in the growth phase. The Charity has in the past issued tax receipts to donors, including employees, who made donations to the Development Funds.

8) The Charity currently has a Program under which employees can apply for credit or non-credit course reimbursement. The Program is completely separate from the Development Funds. The Program is a part of the Charity's annual operating budget and is administered by XXXXXXXXXX. Employees must complete an application under this Program which must then be approved by their supervisor. The approved application is forwarded to XXXXXXXXXX to determine if it meets the requirements for reimbursement and if sufficient money exists in the budget to support it. If the request meets the requirements and enough money exists in the budget, the request is approved.

Proposed Transactions

9) The Charity will adopt the proposed Policy. The proposed Policy states that employees who choose to make donations to the Development Funds should be aware that eligibility for participation in professional development activities is not contingent on making donations to the Development Funds nor does the fact that an employee has made a donation to the Development Funds have any bearing whatsoever in the Charity's decision as to who will participate in professional development activities.

10) Under the proposed Policy governing the Development Funds, the following rules apply:

a) Subject to the terms of the Policy, employees may make charitable contributions to the Development Funds;

b) Donations made by employees will be deposited into the Development Funds identified by the employee on the XXXXXXXXXX;

c) Where no particular Development Fund is so designated, the Charity will select the Development Fund or Funds to which the donation will be applied;

d) Beyond requiring that his or her donation be directed to the Development Funds, or a particular Development Fund, an employee may not direct that his or her donation be used for the professional development of himself or herself (or of any other particular individual), for employees of any particular occupational category within the Charity, for any particular type of professional development activity or make any other direction concerning the use of the donation, the intent of which would be benefit an identifiable individual.

e) Notwithstanding the rules described above, the Charity may accept funding from an employee who has made directions contrary to the rule described in d) above provided that such funding is accepted on the understanding that a charitable tax receipt will not be issued.

f) In exercising its discretion to disburse monies from the Development Funds, and in determining which of its employees will be participating in professional development activities funded in whole or in part by such disbursement, the Charity will make its decision based upon normal operational considerations and may not take into consideration the source of the donations made to the Development Funds.

11) The Charity will implement the draft Guidelines for the X Fund. The draft Guidelines provide:

a) Up to half of the interest earned on the X Fund will be available for employee development yearly. The number of awards will be dependent on the fund's performance in the previous year.

b) An employee who wishes to receive professional development funding will be required to complete an application form. On the application form, the employee will provide the following information:

i) length of employment with the Charity,

ii) description of the credential or professional designation for which the employee is seeking funding,

iii) an explanation of how the credential or professional development designation will benefit the Charity or its students,

iv) an outline of the employee's professional development plan, and how the credential or professional designation will help the employee achieve his/her goals,

v) an explanation of the employee's financial needs for the credentials or professional designation,

vi) the total training costs including tuition fee and books and a breakdown of the employee's funding sources,

vii) a letter of support from the employee's immediate supervisor,

viii)proof of registration in certification or professional designation program, and

ix) a declaration that the employee plans to continue his/her current employment with the Charity for at least one year following the receipt of funds.

c) In XXXXXXXXXX of each year, XXXXXXXXXX will issue a call for applications. The application deadline will be XXXXXXXXXX. The Vice Presidents of the Charity will get together, review and select the successful applicants based on the merit of their application and the benefit to the Charity. The successful applicant will have until XXXXXXXXXX of the following year to expend the funds. Any funds not expended by XXXXXXXXXX will be added onto the following year's awards.

d) If the training is out of XXXXXXXXXX, the President of the Charity must approve the application. If the training is out of Canada, the approval of the Board of Governors of the Charity must be obtained.

12) You advise that the guidelines for the Y Fund and the Z Fund will be identical to those for the X Fund as described in 11 above.

Purpose of the Proposed Transactions

13) The Charity intends to start disbursing funds from the Development Funds. The Charity has requested an advance ruling to confirm the Charity's ability to issue receipts to employees of the Charity who have directed their donations to the Development Funds in accordance with the proposed Policy described in 10 above.

RULINGS GIVEN

Provided that the preceding statements constitute a complete and accurate disclosure of all the relevant facts, the proposed transactions, and purpose of the proposed transactions, and provided further that the proposed transactions are carried out as described above, we confirm that:

A. Provided that no correlation exists between an employee's donation to the Development Funds and the employee's receipt of an award from the Development Funds, an amount equal to the fair market value of a donation made by the employee to the Charity in accordance with the proposed Policy described in 10 above, will qualify as a gift for the purposes of the definition of "total charitable gifts" in subsection 118.1(1) provided an official receipt containing prescribed information is filed as required by subsection 118.1(2).

B. The Charity may issue an official receipt within the meaning of section 3501 of the Income Tax Regulations to an employee for a gift described in ruling A above.

The above rulings are based on the Act in its present form and do not take into account any proposed amendments to the Act.

The above rulings are given subject to the limitations and qualifications set out in Information Circular 70-6R5 and are binding on the CRA provided that the proposed Policy and the draft Guidelines, as described in 10 and 11 above, are implemented before XXXXXXXXXX.

Yours truly,

XXXXXXXXXX
Manager
Charitable and Financial Institution Sectors
Financial Sector and Exempt Entities Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch