Casual Legal: What does it mean to be a qualified donee?

By Tamara Korassa
Reynolds Mirth Richards Farmer LLP
Alberta Municipalities Casual Legal Service Provider

Pursuant to the Income Tax Act, municipalities are designated as qualified donees. As such, like registered charities, municipalities are permitted to issue official donation receipts (“Receipts”) to donors for gifts they receive and are also eligible to receive gifts from registered charities.

However, unlike registered charities, municipalities do not need to register with Canada Revenue Agency (“CRA”) to earn their status as a qualified donee – municipalities are automatically registered based on their status as a municipality. The CRA may, however, revoke a municipality’s status if it does not comply with the rules pertaining to the issuing of tax receipts or the maintenance of records.

A municipality that has received a gift (and decides to issue a Receipt) must determine the gift was for the purposes that are set out in the Income Tax Act and determine the eligible amount of the gift. To determine if a gift has been received, the municipality will need to answer the following questions:

• Was the gift made voluntarily? Gifts that are made as a result of a contractual or other obligation (e.g., a court order) are not eligible for a receipt.
• Was there a transfer of property? Receipts can only be issued where the gift is tangible property (e.g., real property, personal property) or intangible property (e.g., cash, securities). Gifts of labour or other services are not eligible for a Receipt. 
• Did the donor receive an advantage? If the fair market value of the advantage is more than 80% of the gift, the gift is not eligible for a receipt.
• Did the donor ask for the gift to be directed to a specific person or a non-qualified donee? A donor is unable to select a specific beneficiary for their gift but can direct the gift to a particular program provided there is no benefit to the donor or someone not at arm’s length to the donor.

Some examples of transactions that do not qualify as gifts include gifts of service (i.e., donated time or labour), gifts in exchange for advertising or sponsorship, a payment for a chance to win a prize, and an admission fee to an event or program.

Receipts must be legible and in a form that is not easily altered. The information required to be noted on a Receipt includes (but is not limited to) a statement that the receipt is for income tax purposes, a serial number, the dates of the gift and of the receipts, the full name (including middle initial) of the donor, the amount of the gift and a description of any advantage received by the donor. If the gift is a non-cash gift a description of the property must be included on the receipt and the amount must be the fair market value at the time the gift was made. The donation receipt must also be signed by an individual authorized on behalf of the qualified donee to acknowledge gifts.

Before issuing Receipts for gifts, a municipality should implement a policy setting out who has authority to issue a Receipt, the form in which the Receipt will be issued, how the books and records will be kept with respect to gifts and Receipts, and who has the discretion to determine if/when a Receipt will be issued to ensure and demonstrate compliance with the Income Tax Act.

To access Alberta Municipalities Casual Legal Helpline, Alberta Municipalities members can call toll-free to 1-800-661-7673 or send an casuallegal [at] abmunis.ca (email ) to reach the municipal legal experts at Reynolds Mirth Richards and Farmer LLP. For more information on the Casual Legal Service, please call 310-MUNI (6864) or send an riskcontrol [at] abmunis.ca (email) to speak to Alberta Municipalities Risk Management staff. Any Regular or Associate member of Alberta Municipalities can access the Casual Legal Service.

DISCLAIMER: This article is meant to provide information only and is not intended to provide legal advice. You should seek the advice of legal counsel to address your specific set of circumstances. Although every effort has been made to provide current and accurate information, changes to the law may cause the information in this article to be outdated.