The 10-year anniversary date of the split-receipting rules is drawing near, and yet Parliament has still not enacted amendments to the Income Tax Act to make them law. Since the proposal (and application) of the split-receipting rules on December 20, 2002, questions continue to arise on how these rules are to be applied.

On May 23, 2012, Canada Revenue Agency (CRA) released its views on the application of the split-receipting rules to a fundraising dinner based on a hypothetical set of facts (document #2010-0391511E5). In that case, Mrs. A enters into an arrangement with a registered charity to host a fundraising dinner for the charity. The dinner will be hosted in Mrs. A's home by acquiring catering services from a third-party contractor. Mrs. A will also donate a selection of fine wines for consumption by the dinner participants.  Mrs. A has requested a donation receipt in respect of the wines that she will donate and the catering service expenses.

Either swap cheques or document wish for receipt, not reimbursement

CRA indicated that generally a charity can reimburse an individual for expenses incurred on behalf of the charity and later accept the return of the payment as a gift, if the amount is returned voluntarily. In this particular scenario, CRA expressed that the host must have a right to be reimbursed under the terms of an agreement with the charity if the charity is to issue a receipt to the host in lieu of reimbursing the expenses. For example, if a person paid $200 to hire a caterer, then the person would be entitled to be reimbursed the $200 paid. After the reimbursement, if the person voluntarily donates the $200 back to the charity, then a donation receipt can be issued.

Alternatively, according to CRA's policy CPC-012, it is also possible for the charity to issue a donation receipt in lieu of reimbursement, provided that the charity obtain a written direction from the person confirming that right to reimbursement and directing the charity to issue a receipt rather than provide reimbursement.

Value gifts in kind accurately

In relation to the donation of fine wine by Mrs. A, CRA points out that the policy regarding donation of gifts in kind will need to be followed in order to determine whether a receipt can be issued and what the eligible amount of the receipt should be.

As well, CRA was asked to address the following hypothetical facts: (1) individuals may participate at the event by paying a pre-determined amount to Mrs. A who acts on behalf of the charity, or (2) individuals may participate at the event by purchasing the right to participate in the fundraising dinner at an auction held for the charity's benefit. The question is whether an official donation receipt could be issued to these individuals.

Deduct market value of comparable meal

With respect to the first scenario where participants pay a pre-determined amount to Mrs. A who acts on behalf of the charity, CRA expressed that the value of a comparable meal provided by a comparable facility should be considered in determining the amount of advantage in respect of the gift in order to arrive at the eligible amount of the gift. For example, if participants paid $200 to attend the event and it would cost $80 to have a comparable meal, then the eligible amount of the receipt would be $120 provided no other advantages are involved. A similar example was provided in CRA's Income Tax - Technical News No. 26, dated December 24, 2002.

For auction, name value in advance and receipt the difference

In the second scenario where participants purchase the right to participate in the fundraising dinner at an auction held for the charity's benefit, CRA expressed that a receipt can be issued for the difference between the amount bid by the participant and the value of the right to attend the fundraising dinner sold at the auction, provided that the value is clearly otherwise ascertainable and made known to all bidders in advance.

CRA also expressed that the value of a comparable meal provided by a comparable facility should be considered in order to determine the value of the right to attend a fundraising dinner being sold at auction and to arrive at the eligible amount of the gift. In a simple example, if a person paid $300 at an auction for a ticket to attend a fundraising dinner, and a comparable meal is worth $80 (as in the above example), then the eligible amount of the receipt would be $220, again provided no other advantages are involved.

Lastly, CRA reminded charities that the onus is on the charity to ensure that the amount reported on the donation receipt reflects the fair market value of the property donated, and to determine the value of the advantage provided in respect of a gift. In addition, if the value of an advantage cannot be reasonably ascertained, no charitable tax deduction or credit will be allowed.

Theresa L.M. Man practices charity and not-for-profit law with Carters Orangeville office. Contact her by email.