The Canada Revenue Agency (CRA) released a technical interpretation in CRA View 2022-0945221E5 on February 1, 2023 concerning amounts collected by a charity and provided to a municipality that were to be directed to a non-profit organization. The CRA was asked for comments concerning a municipality receiving donated funds collected by a registered charity which was then to be directed to the non-profit organization, i.e. a non-qualified donee (“non-QD”) recipient.
In particular, a registered charity had proposed to assist the non-QD in a fundraising campaign by collecting funds and issuing donation receipts on the non-QD’s behalf. The collected funds would be donated by the charity to the municipality; the charity would then “suggest” that the municipality could provide those funds to the non-QD, as part of a municipal program.
In its response, the CRA stated that the Income Tax Act (ITA) does not contain specific rules relating to the use of funds by municipalities. It also stated that there may be restrictions on the use of municipal funds under provincial legislation and bylaws.
The CRA stated that registered charities may be subject to revocation if they accept 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.
As well, the CRA stated that it is a question of fact whether a gift has been made to a qualified donee. It further stated that it is the CRA’s general view that donations can be received and receipted by a qualified donee, such as a municipality, provided that the municipality retains discretion as to how the donation is to be spent. However, where a municipality merely acts as a conduit by collecting funds from donors (including registered charities) 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. This is consistent with previous CRA Views concerning municipalities in essence lending their registration number to non-profit organizations in collecting donations for them in acting as a conduit in non-compliance with the ITA.
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Ryan M. Prendergast is a partner with Carters.