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: 1. Can a municipality in Canada issue a tax receipt for purposes of the donation tax credit for individuals and the donation tax deduction for corporations?
2. Does the Income Tax Act speak to the manner in which a municipality must use funds received by way of gift and for which a tax receipt has been issued?
3. Where a municipality receives funds by way of gifts from individuals and corporations, matches the amount of the gifted funds and then forwards the total funds to a registered charity, would the individuals and corporations be entitled to donation receipts in the amount they actually gave to the municipality or in the amount received by the registered charity (i.e. including the matched funds)?
4. Where a municipality receives funds by way of gifts from individuals and corporations, matches the amount of the gifted funds and then forwards the total funds to a registered charity, can the municipality issue donation tax receipts in the name of the charity?
Position: 1. Yes, where the municipality has received a gift.
2. No, the use of municipal funds would be governed by provincial statutes and/or municipal bylaws.
3. The amount of the tax receipt issued to the individual or corporate donors cannot be more than the amount they actually gifted to the municipality (i.e. their receipt cannot include the matched funding).
4. A municipality may issue a tax receipt in the name of a registered charity only where there is an agency agreement between the municipality and the registered charity which permits the municipality to collect donations as agent for the registered charity and permits the municipality to issue the tax receipts in the charity's name.
Reasons: 1. A municipality in Canada is a "qualified donee" for purposes of the charitable gifting rules in sections 118.1 and 110.1 of the Act.
2. The Income Tax Act.
3. A tax receipt issued to a donor cannot exceed the amount of the gift by the donor to the qualified donee. Any matched funds would be a donation of municipal funds to the registered charity by the municipality.
4. Legal relationship created by agency agreement.
XXXXXXXXXX 2005-011189
Alison Campbell
February 8, 2005
Dear XXXXXXXXXX:
Re: Charitable Gifts
This is in reply to your letter of January 13, 2005 requesting a technical interpretation with respect to charitable donations made to a municipality in Canada. The situation described in your letter appears to be an actual fact situation and written confirmation of the tax implications inherent in proposed transactions are given by this Directorate only where the transactions are the subject of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5. However, we can provide you with the following general comments.
Section 118.1 of the Income Tax Act (the "Act") provides that individual taxpayers may claim a credit against taxes payable, within specified limits, for a gift made to a "qualified donee", if supported by official receipts. Section 110.1 of the Act permits a corporation to claim a deduction, within specified limits, in computing taxable income in respect of gifts made by the corporation to a "qualified donee". A municipality in Canada is a "qualified donee" for purposes of the Act, by virtue of the subsection 149.1(1) of the Act, and the definition of "total charitable gifts" in subsection 118.1(1) of the Act. Therefore, when a municipality in Canada receives a gift from an individual or corporation, the municipality may issue an official tax receipt which will permit an individual donor to claim a tax credit or a corporate donor to claim a tax deduction.
The Income Tax Act does not contain specific rules relating to the use of municipal funds. There may, however, be restrictions on the use of municipal funds under provincial statutes or municipal bylaws. You may wish to discuss with the municipality's legal counsel, the application of municipal bylaws and statutes other than the Income Tax Act to your situation.
Where a municipality receives a gift from an individual or corporation, which is matched with municipal funds and then transferred by way of gift from the municipality to a registered charity, the registered charity could issue a donation receipt to the municipality for the full amount the charity received. The municipality would issue a tax receipt to the individual or corporate donor for the amount gifted to the municipality by the individual or corporate donor. The matched funding provided by the municipality cannot be included in the amount of the tax receipt provided to the individual or corporate donor.
A municipality and a registered charity may enter into an agency agreement that provides for the municipality to collect donations on behalf of, and as agent for, the registered charity. The agency agreement may also permit the municipality to issue tax receipts in the name of the registered charity but again, as noted above, not for the amount of the matched funding provided by the municipality.
Finally, it is our general view that donations can be receipted by a municipality in Canada on behalf of an organization which operates under the authority of the municipality (e.g., a committee established by a municipal bylaw). However, where the municipality is merely acting as a conduit for some other organization that is not under the authority of the municipality, it is our view that payments received by the municipality on behalf of the organization could not qualify as gifts to a municipality in Canada for purposes of subsections 118.1(1) and 110.1(1) of the Act.
We trust that the above comments will be of assistance to you.
Yours truly,
F. Lee Workman
Manager
Financial Institutions Section
Income Tax Rulings Directorate
Policy and Planning Branch
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