GENERAL COMMITTEE

 

 

 

 

 

TO:

Mayor and Members of Council

 

 

 

 

FROM:

Andy Taylor, Commissioner, Corporate Services

Barb Cribbett, Treasurer

 

 

 

 

PREPARED BY:

Joel Lustig, Director of Financial and Client Services

 

 

 

 

DATE OF MEETING:

2005-May-2

 

 

 

 

SUBJECT:        

Issuance of official tax receipts for income tax purposes

 

 

 

 

RECOMMENDATION:

THAT the report dated May 2, 2005 entitled “Issuance of official tax receipts for income tax purposes”, be received;

 

AND THAT the policy entitled “Policy for issuance of official tax receipts for income tax purposes”, be adopted;

 

AND THAT the Town of Markham shall only issue official tax receipts for donations intended for specific purposes where Council has authorized such specific purpose and the necessary account has been established, or where appropriate, a reserve fund has been created at the authority of Council;

 

AND THAT donations accompanied with a request that the Town of Markham use the funds to support an organization independent of the Town, shall be accepted with the understanding that no official tax receipt will be issued;

 

AND THAT the Town of Markham will only issue official tax receipts for the fair market value of Gift in Kind donations where the donation provides a clear benefit to the Town of Markham;

 

AND THAT the Town of Markham will only issue official tax receipts for events that are deemed Official Town Events;

 

AND THAT the Treasurer or designate be authorized to determine if a donation is eligible for a tax receipt, in accordance with the Canada Customs and Revenue Agency regulations;

 

AND FURTHER THAT the Town of Markham will not provide financial services (i.e. banking services/ financial reporting) for Non-Official Town Event and other entities unless otherwise directed by Council.

PURPOSE:

This report is to establish a policy (Appendix “A”) that provides Staff and Council guidelines for the issuing of official tax receipts for income tax purposes.

 

BACKGROUND:

The Town currently accepts donations and provides official tax receipts as per the Income Tax Act which grants authority to Canadian Municipalities to issue official tax receipts for income tax purposes for “gifts” donated to them.

 

The majority of tax receipts are currently issued for donations received by the Cultural venues (Frederick Horsman Varley Art Gallery and the Markhm Theatre). The donations for the Art Gallery are mainly art related items with a Frederick Horsman Varley focus and the Theatre donations are generally money donations, generated through a membership subscription drive.

 

DISCUSSION:

The following is a summary of key points of the attached policy:

 

General Rules

1.      Revenue Canada’s definition of a donation/gift is “a voluntary transfer of property owned by a donor to a donee, in return for which no benefit flows to the donor”

 

2.      To have a valid donation/gift, there must be an intention to give, a delivery, and an acceptance. Because there must be an acceptance by the donee, a donation is not completed until it is accepted.

 

3.      The transfer is made without the expectation of return.

 

4.      No benefit of any kind may be provided to the donor or to anyone designated by the donor, except where the benefit is of nominal value. The benefit is considered nominal value where its fair market value does not exceed the lessor of $50.00 or 10% of the amount of the donation.

 

Qualifying Donations

Donations that qualify for official tax receipts generally include:

 

1.   cash

2.      capital, real or depreciable property

3.      personal-use property, works of art, jewelry, rare; book, stamp, or coin

4.      a leasehold interest or a residual interest in real property

5.      donations of life insurance policies

6.      donations under will

Special rules exist for donations of cultural property & donations of ecologically sensitive lands.

 

 

Non-Qualifying Donations

1.      Contributions of skills or time through volunteer service do not qualify as donations.

 

2.      The payment of a basic fee for admission to an event or to a program does not qualify as a donation that is eligible for the issuance of a tax receipt. An exception to this rule is available for the purchase of a ticket to a fund-raising dinner, ball, concert, and show or like event. In this case, the donation is valued as the difference between the fair market value of the food, entertainment, prizes and the purchase price of the ticket. As per the Revenue Canada guidelines, the Town of Markham will not issue a tax receipt if the total value of the food, entertainment & prizes received exceeds 80% of the purchase price of the ticket.

 

3.      When a donor requests the donee to pay for a portion of the donation and the amount paid by the donee exceeds 80% of the total value of the donation, a tax receipt will not be issued. For example a piece of land valued at $100,000 is offered to the Town for $85,000 with the request that the Town issue a tax receipt for the difference, $15,000. Since the amount to be paid by the Town is in excess of 80% of the value of the land, the Town is unable to issue a tax receipt for the difference.

 

4.      When the donor has directed the funds to a specific person or family, a tax receipt will not be issued.

 

5.      Donations made in exchange for consideration of a right, privilege, material benefit or advantage such as promotion or advertising for the donor's purposes do not qualify for income tax credits under the Income Tax Act, and no income tax receipt can be issued.

 

  1. The Canada Customs Revenue Agency’s (CCRA) regulations on donations where the donor's company name, company logo or slogan and or address/phone numbers is listed in promotional material, would not permit a tax receipt.  The reason is that this is deemed as "significant advertising/promotion or sponsorship" for the donor (i.e. it is a form of advertising/promotion for the donor company).

 

Accounting for Donations for Specific Purposes
In certain cases, donations and requests for donations are made for specific purposes. These requests may originate from individuals, organizations, or Council directly. Long-term programs, where cash inflows and expenditures may span many years are best handled through the establishment of a reserve fund. Examples include donations for specific capital projects, or donations to assist with specific ongoing operational needs, such as for the Museum, Theatre or the Frederick Horsman Varley Art Gallery. Such new programs would require that Council authorize the creation of a new reserve fund.

 

Requests to direct donations for specific operations or for specific projects, such as to a community or cultural centre are generally short-term in nature (i.e. less than one year), are best handled by depositing the funds to the appropriate account. The creation of such accounts will require Council approval.

 

Accounting for Donations to Support Organizations Independent of the Town

On occasion, organizations that offer programs of genuine benefit to the community may request the Town receive donations on their behalf for the purpose of issuing income tax receipts. Under the Income Tax Act, the Town cannot issue income tax receipts for funds that it will not itself be responsible for spending. Such organizations should receive their donations directly, and register as a Charity with Revenue Canada if they wish to provide income tax receipts.

 

Staff consulted with KMPG, the Town’s external auditing firm, with regards to the practice of issuing tax receipts to donors where the funds are transferred to others. Although no formal opinion was provided, KPMG stated they were aware of a municipality issuing tax receipts for funds that were transferred to organizations not affiliated with the municipality. These funds were used for the improvement of a park within the municipality and as such, the funds directly benefited the municipality in that regard.

 

Under the Municipal Act, the Town has the general power to make grants. In certain circumstances, some municipalities, such as the City of Toronto, have determined it’s in their best interest to make grants to such organizations. In these cases, where donations are made to the City of Toronto and where the donor expresses a desire that the donation be applied to such special purposes, a report must be written to Council prior to the deposit of the donation. The direction to staff may include granting an equivalent amount for the special purpose, issuing an income tax receipt to the donor where appropriate, or returning the monies to the donor.

 

However, it is the Staff’s opinion this practice is not consistent with rules set out in the Income Tax Act and therefore recommend the Town be able to accept these types of donations with the understanding that no official tax receipt will be issued.

 

Accounting for Donations of Gifts-in-Kind

A gift-in-kind donation, where accompanied by a request for a tax receipt, must be clearly within the interest of the Town and must provide a benefit within the context of the Town's program areas.

 

The value placed on Gift-in-Kind items will be determined by the item’s Fair Market Value.

 

Fair market value is defined as the price an item would bring in an open and free market between a willing buyer and a willing seller who are acting independently of each other.

 

Valuation of Fair Market Value should be based on an arm's length sale and purchase of similar property at or near the same date. A minimum of two appraisals are required to be completed by a qualified dealer, appraiser or other knowledgeable individual who is familiar with the market for the object or property, whenever possible Art appraisers are to be members of ADAC (Art Dealers Association of Canada). The dealer, appraiser or other knowledgeable individual must not be associated with the donor. The appraisals shall be in the form and content acceptable to the Treasurer or designate. Any appraisal not sufficient in form and content may be rejected, and one or more additional satisfactory appraisals may be required to be produced before an official tax receipt is issued.

 

The official tax receipt shall be in the amount of the appraised value, or in the case of two or more appraisals, the average appraised value.

 

Official Town Event

An Official Town Event is an event approved by Council, organized by a Town Committee or Department where the event’s funding is provided by the Town’s budget and the Town controls the spending of the event’s funding.    

 

Non-Official Town Events

In an effort to remove the risk of Non-Official Town Events being considered Official Town Events, it is the recommendation of Staff to no longer provide financial services (i.e. banking services/ financial reporting) for any Non-Official Town Event unless otherwise directed by Council.

 

Summary of Key Criteria

The following is a summary of the key criteria used to determine if a donation is eligible for an official tax receipts for income tax purposes

 

  1. Must be a Official Town Event.
2.      All requests for Tax receipts must include the appropriate donor information as detailed on the “Money Donation Receipt Request” form or “Gift in Kind/Conditional Gift Receipt of Donation” form.
  1. For cash donations, the receipt must be made out to the person delivering the donation. All cash donations greater then two hundred and fifty dollars must be received at the Cash Management office. All cash donations of two hundred and fifty dollars or less can be received at the appropriate cultural office or the cash management office.
  2. For donations made by cheque, the receipt must be made out to the same name and address appearing on the cheque and the cheque must be cleared before an official tax receipt may be issued.
  3. Cheques, money orders, bank drafts must be made out to “The Corporation of the Town of Markham”, “Markham Theatre”, “Markham Museum”, or “Frederick Horman Varley Art Gallery”. No third party cheques will be accepted.
  4. Each gift-in-kind donation must have a completed “Gift in Kind/Conditional Gift Receipt of Donation” form and supported by appraisal(s).
  5. Donations cannot have a direct benefit to the donor or any relative of the donor. Relative is defined as parent, sibling, children, grandparent, uncle, aunt, and parent in-law.
  6. Funds are to be used for the benefit of the Town only.

Acceptance

The Treasurer or designate is the final level of acceptance for all donations requiring tax receipts to the Town of Markham. The Treasurer or designate may grant approval for official tax receipts for money donations made through a Council approved fund raising effort, i.e. the Markham Theatre Membership Drive.

 

FINANCIAL CONSIDERATIONS:

None

 

BUSINESS UNITS CONSULTED AND AFFECTED:

Various Business Units throughout the Town were consulted in this process in order to obtain current practices within the Town.

 

ATTACHMENTS:

Appendix “A” Issuing official tax receipts for income tax purposes policy

Appendix “B” “Gift in Kind/Conditional Gift Receipt Request” form

Appendix “C” “Money Donation Receipt Request” form

 

 

 

 

 

 

Barb Cribbett,

Treasurer

 

Andy Taylor,

Commissioner of Corporate Services

 

F:\Finance and Administration\Finance\SHARED\2005 General Committee Finance\0508 Tax Receipts May 2 05.doc