Ten steps to error free receipting 1
Importance of receipting A significant benefit of being a registered charity is the ability to issue official donation receipts to donors supporting your charity Your charity is expected to issue official donation receipts according to the rules set out in the Income Tax Act and according to the guidance of CRA Unfortunately, error free receipting practices are an ongoing challenge for many charities E.g. according to CRA, when it audits Canadian registered charities approximately 89% of charities are involved in some inappropriate receipting practice This module will highlight the seven common receipting errors identified by CRA and introduce three proactive strategies that will help your charity improve its receipting practices 2
Ten suggestions to improve your receipting practices Ten practices to help your charity accomplish error free receipting are: 1: Issue receipts only for gifts 2: Avoid receipting for services 3: Put the proper information on your official tax receipts 4: Know how to calculate the Fair Market Value of a non-cash gift (gift-in-kind) 5: Know how to split receipt 6: Tell your donors about your receipting practices 7: 8: Control receipting processes connected to your charity Use CRA and community partner resources and checklists 9 : Protect your charity from fraud 10: Develop a gift acceptance policy The following slides will provide more detail about each of these practices 3
Practice One: Issue receipts only for gifts A registered charity can only issue official tax receipts for a gift, as defined by CRA. The first question you must ask is Is this donation considered a gift by CRA definitions? Use these questions to determine if the donation is considered a gift. If any answer is NO, you cannot provide an official donation receipt from your charity. Is it a property? Was it voluntarily given to your charity? Can you determine who the true donor is? Will the gift be completely transferred over to the charity? Can I determine the Fair Market Value of the gift? Was the value of the gift below the donative intent threshold of 80%? 4
Use caution with the following issues Where the donor received a benefit that has value Basic admission fee to an event or a program Purchase of goods e.g. successful bid for an item at a silent auction Purchase of a lottery ticket or some chance to win prizes Membership fees unless there were no real benefits received by donor A business receiving significant advertisement for their gift (Sponsorship) Where the donor cannot be determined Loose collection or anonymous donations to your charity When the property has not been completely transferred Pledges Gift certificates from a business When the Fair Market Value of the property cannot be determined Gifts of little or no value like used clothing, household furniture, old toys When the property was not voluntarily given to the charity Court ordered contribution 5
Practice Two: Avoid receipting for services A common error is issuing receipts for services provided to your charity A good example might be an accountant offers to help with your financial report if she receives a tax donation receipt for her professional services A service is not a property, thus is not a gift by CRA definition and cannot be receipted. Here is how to do it properly CRA recommends a three-step process which provides a clear paper trail of in/out financial transactions between the service provider and the charity The service provider invoices the charity for the service provided The charity issues a cheque to the service provider to pay the invoice The service provider donates back to the charity in a separate transaction, thus receiving an official tax receipt for their donation Note: There should be no pre-agreement that the service provider must donate the invoiced amount as part of the reason for receiving a contract 6
Practice Three: Put the proper information on your official tax receipts CRA identifies the information expected on all official tax receipts. The basic information expected on all receipts includes: A statement that it is an official receipt for income tax purposes Name and address of the charity as on file with the Canada Revenue Agency Charity's registration number Serial number of the receipt Place or locality where the receipt was issued Day or year donation was received Day on which the receipt was issued if it differs from the day of donation Full name, including middle initial, and address of the donor Amount of the gift Value and description of any advantage received by the donor Eligible amount of the gift Signature of an individual authorized by the charity to acknowledge donations Name and Web site address of the Canada Revenue Agency - www.cra.gc.ca/charities There are four different types of receipts: For cash donations (with no advantage and with an advantage) For non-cash donations (with no advantage and with an advantage) CRA provides samples of these receipts at http://www.cra-arc.gc.ca/chrts-gvng/chrts/pbs/rcpts-eng.html 7
Use caution with receipts for non-cash gifts (gifts-in-kind) Receipts for non-cash gifts must include this additional information: Day on which the donation was received (if not already indicated) Brief description of the property that was transferred to the charity Name and address of the appraiser (if property was appraised) Note: additional Information required on non-cash receipts 8
Practice Four: Know how to establish the FMV of a non-cash gift You must be able to establish the Fair Market Value (FMV) of a non-cash gift in order to receipt the gift. The definition of Fair Market Value is normally: The highest price, expressed in dollars, that property would bring in an open and unrestricted market, between a willing buyer and a willing seller who are both knowledgeable, informed, and prudent, and who are acting independently of each other. Bottom line: The onus is on the charity to ensure the FMV of a non-cash gift is appropriate and accurate, regardless of the suggestion of the donor Items worth more than $1,000 should be appraised by someone who is knowledgeable and independent of both the charity and the donor The consequences for improperly determining FMV can be substantial, especially if connected to tax-avoidance or inflated tax donation schemes 9
Be aware of newer CRA guidelines about non-cash gifts CRA introduced newer guidelines related to Fair Market Value that were designed to address inappropriate gifting practices by some donors. These guidelines, called The Deemed Fair Market Value Rule, outline criteria your charity should be aware of when they receive a non-cash gift. If the answer to any of following questions is Yes, then the receipt is for the lesser of the Fair Market Value or the cost of the item when the donor purchased it. Did the donor acquire the non-cash gift: As part of a tax shelter arrangement? Less than three years before donating it to your charity? Less than ten years before the time of donation, with a main purpose being to gift the property to your charity? View detailed information about Deemed Fair Market Value at http://www.cra-arc.gc.ca/chrts-gvng/chrts/prtng/rcpts/dmdfmv-eng.html 10
Practice Five: Know how to split receipt A donor might receive some benefit because they attend your fundraising activity (e.g. golf fees when they attend a golf tournament ) Your charity must subtract the value of benefits received at the activity (called advantages) from the donation amount to determine the eligible amount of the Receipt that the donor will receive. Donation Advantage(s) = Eligible Amount of Receipt (minus) There are two types of advantages or benefits that a donor can receive Advantages necessary to the fundraising activity (e.g. meal at a gala) These must be calculated at their FMV and subtracted from donation amount. Advantages complimentary to the fundraising activity (e.g. swag) These are subject to de minimis threshold guidelines and do not need to be subtracted if their value is below the de minimis threshold The lesser of 10% of the value of the donation given or $75 11
Let s look at an example that involves split-receipting A donor attends the following golf tournament fundraiser. The entry fee is $200 and the tournament has 100 attendees. Advantages (or benefits) the attendee receives at the tournament are: Cost of the regular green fee for the course $50 Cost of the regular golf cart rental fee $20 Per-person cost of the food and beverage provided $30 Cost of the golf T-shirt given to each attendee $15 The attendee has access to the following without additional costs Doors prizes with a Fair Market Value of $2000 A Hole in one prize that could be worth $10,000 Raffle tickets are sold separately at the event for a $1000 TV set. What is the eligible amount of the receipt the donor will receive? Is the donative intent threshold met? 12
Answers to golf fundraiser scenario The cost of these benefits must be included as advantages Green Fee $50 Cart Rental $20 Food and Beverage $30 Total $100 The cost of these benefits are complimentary and subject to the de minimis threshold guidelines (are they > 10% of $200 entry - YES) Golf T-shirt $15 FMV per person of the door/achievement prizes $20 ($2000/100 participants) These do not count as benefits Hole in one prize of $10,000 (only 1/40,000 chance of winning so not a benefit) $1000 TV for the raffle because tickets are sold separately (a choice to participate) Eligible Amount of Receipt = $200 (100 + 35) = $65 Has the donative intent threshold been met YES advantage was < 80% of Donation (135/200 or 67.5%) Total $35 13
Practice Six: Tell your donors about your receipting practices Your charity does not have to issue a tax-receipt for every gift that it receives. (e.g. charities often have guidelines setting out when they will issue tax receipts, like no receipt for donations under $10) What should your charity do about receipting practices? Explain your policy upfront with respect to donations and issuing of receipts; especially when a donor is receiving an advantage (e.g. attending a gala) so the donor knows exactly what the eligible amount of their receipt will be Studies have shown that accurate and accessible communication about receipting practices is important in maintaining the confidence of donors in both your charity and the charitable sector CRA has created a separate section of the website for donor education (http://www.cra-arc.gc.ca/chrts-gvng/dnrs/menu-eng.html) Note: If your charity is issuing a tax-receipt, CRA recommends that it be done by the end of February for the previous year s donations 14
Practice Seven: Control receipting processes connected to your charity A registered charity is responsible for all tax receipts issued under its name and number and must account for the corresponding donations on its annual T3010 Information Return. Under no circumstances should a registered charity lend its registration number to another organization for receipting purposes. A charity lending its registration number risks losing its charitable status. Related issues: Never issue a receipt for a donation that is intended for another organization that is not a registered charity or qualified donee (becoming a conduit for others) Retain control of all receipting practices related to any third party fundraising event connected to your charity 15
Practice Eight: Use CRA website and tools http://www.cra-arc.gc.ca/chrts-gvng/chrts/prtng/rcpts/menu-eng.html CRA has organized receipting information into sub-categories and has various webinars on its website Review this information closely Webinars (e.g. Gifting and Receipting) 16
Check out the websites of community projects funded by CRA The Charities File http://thecharitiesfile.ca/ The Atlantic Charities Learning Exchange http://www.atlanticcharities.ca/ Charity Central http://www.charitycentral.ca/node/5 Canada Charity Law http://www.canadiancharitylaw.ca/ Imagine Canada http://charitytax.imaginecanada.ca/topics/gifts-receipting 17
Resources of special note Each community partner has excellent materials to assist Canadian charities with their operational practices The following resources are specially focused on receipting practices and will help your charity concentrate on key issues, practices and common errors related to receipting The Charities File Fundraising Receipting Logic Model Fundraising Receipt Book Specific Questions about receipting http://thecharitiesfile.ca/en/reciptbook/checklist Canada Charity Law - Mark Blumberg Receipting by Canadian Registered Charities http://www.globalphilanthropy.ca/images/uploads/top_receipting_concerns_for_canadian_registered_charit ies.pdf Atlantic Charities Learning Exchange Receipting checklist http://www.atlanticcharities.ca/sites/atlanticcharities.ca/files/handout%20a5%20-%20receipting%20checklist.pdf 18
Practice Nine: Protect your charity from fraud Your registration number is available on CRA`s website, thus your charity should take steps to minimize the risk of fraud or illegal activities related to the use of your registration number or your receipts Steps to minimize risks include: Developing internal controls to guard against the inappropriate use of your official donation receipts Limiting the number of individuals authorized to issue receipts Restricting access to computerized receipting software Assigning responsibility for issuing receipts and for banking duties (e.g. deposits, signing authority) to different individuals CRA published an list of internal controls your charity could implement See Fall 2009 Newsletter 33 http://www.cra-arc.gc.ca/e/pub/tg/charitiesnews-33/charitiesnews-33-e.html#_improper_receipting 19
Practice Ten: Develop a gift acceptance policy for your charity A gift acceptance policy provides guidance for your staff, volunteers, and donors on gift acceptance and receipting issues. A gift acceptance policy: Provides consistent policies and procedures Provides the staff and/or volunteer with guidelines on when and how to accept and receipt various types of gifts Sets out the types of gifts the charity is not prepared to accept Avoids a case-by-case evaluation and subjective decision making about gifts Makes it easier to communicate your policies with donors Helps with staff and volunteer training about receipting A gift acceptance policy is a living document that needs to be constantly updated 20
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