Penalties Applicable to Charities for Issuing False or Incorrect Donation Receipts
The Income Tax Act provides a significant deduction for charitable donations. A charity’s donation receipts can provide serious incentive to don0rs when that charity is fundraising. Charities are subject to strict rules under Income Tax Act and Regulations and can face extreme penalties if they aren’t aware of their obligations.
Incorrect Information on Receipts
Every donation receipt that a charity provides their doners must follow the requirements laid out in the Income Tax Act and its regulations. The receipt must include both the doner and charity’s name and address, as well as the name and website of the Canada Revenue Agency. It must include a unique serial number, the location the receipt was issued from, the date the receipt was issued, and the date the corresponding donation was received. It must be signed by an individual authorized to issue receipts, include a statement that it is an official receipt for tax purposes, and many more requirements for its form and substance.
For every receipt a charity issues that fails to meet any one of these many requirements, the charity is liable for a penalty equal to 5% of the total value of the donation. In a similar fashion, if any of the information is missing from the receipt, the individuals will be unable to claim the donation on their returns.
False Information on Receipts
The Income Tax Act includes some significant penalties for Tax Preparers who assist their clients in providing false or misleading information to the CRA. Similarly, charities can be held liable for any false information provided to the charity’s doners by way of their donation receipts. If a charity is found to having knowingly issued receipts with false information, or they reasonably should have known, then the CRA can apply a penalty equal to 125% of the total value of the donation.
Additionally, the CRA will suspend any charity’s authority to issue donation receipts for one year if the value of the false information penalty exceeds $25,000 for any tax year.
Revocation of Charitable Status
In addition to monetary penalties, the CRA may revoke a charity’s charitable status if the charity’s receipts fail to meet the requirements in the regulations or include false information. On top of losing the benefits that come with charitable status, the former charity’s revocation is publicly announced in the Canada Gazette. The former charity may also be assessed a revocation tax equal to the fair market value of their assets minus their debts. For organizations with significant assets, this can easily bankrupt a former charity.
Conclusion
If you have concerns regarding whether your charity is complying with requirements for charitable donation receipts, or if the CRA has begun an audit on your charity’s compliance with the Act, speak to a qualified tax lawyer today. We can provide advice tailored to your charity’s specific circumstances and assist you in navigating the CRA’s audit process.
***Disclaimer: This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in this article. If you have specific legal questions, you should consult a lawyer.
1 Income Tax Regulations
CRC, c 945, s 3501
2 Income Tax Act, RSC 1985, c 1 (5th Supp), s 188.1(7).
3 Income Tax Act, RSC 1985, c 1 (5th Supp), s 188.1(9).
4 Income Tax Act, RSC 1985, c 1 (5th Supp), s 188.2(1)(c).
Matthew Pollock
