A recent decision of the Tax Court of Canada serves as an important reminder to taxpayers and charities of several fundamental issues when it comes to making and receipting donations. At issue in Hassan v. R. was the appellant's claim for a 2009 charitable tax credit relating to his purported donation to Operation Save Canada's Teenagers for which he received a charitable tax receipt for $25,000. The appellant claimed that although he gifted only $300 in cash in 2009, at the end of that year he pledged to make $25,000 worth of donations within the following year, ending late 2010. According to the appellant, he then proceeded to honour the pledge by making a series of cash gifts that he personally delivered to the charity's head office.
At the hearing, the appellant was not able to provide bank statements which supported the alleged cash donations nor was he able to describe the charitable activities of charity. Furthermore, the Court found that the paperwork provided to the appellant by the charity was "lacking and sloppy" and resultantly did not satisfy the prescribed information requirements of a donation tax receipt.
The Court categorized the alleged donation and corresponding receipt as a "fraud on the Canadian tax system" and, moreover, a fraud "on the Canadian public".
In rendering its judgment, the Court commented on the following issues:
1. Pledges
CRA has made it clear in several of its publications that a pledge (or promise to make a gift) is not in itself a gift for which an official donation receipt may be issued. If a donor proceeds to honour a pledge, however, a receipt may be issued at such time as the actual donation is made. In Hassan v. R., the Court held that the appellant's receipt of the $25,000 donation tax receipt in 2009 was "obviously not permitted under the Income Tax Act". The Court further found that with respect to the alleged donation of $300 at the end of 2009, if such donation was even made, it was done with the intention of receiving a grossly inflated tax receipt thereby negating the appellant's argument that such donation was, in fact, a receiptable gift.
2. Receipting
CRA has set out the information that must be included on an official donation receipt. As held in Hassan v. R., where a charitable receipt does not conform to the prescribed information requirements, the receipt may be found invalid such that it cannot be used to support the claim of a donation tax credit.
3. Penalties and costs
It is interesting to note that CRA spared the appellant an assessment of penalties for the claim of a fraudulent tax credit. To this end, the Court commented that it was unclear whether the appellant's participation in the tax fraud was as a result of his complicity or having merely been duped. The Court, however, did proceed to award costs against the appellant in an amount of $300 for having pursued a meritless appeal supported by a lack of truthfulness.
The charitable status of Operation Save Canada's Teenagers has been revoked after the organization was unable to provide any supporting documentation for alleged donations in excess of $6 million dollars. The appellant in Hassan v. R. was just one alleged donor of the charity, all of whom have been reassessed by CRA.
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