In Greek mythology Achilles was a Greek hero of the Trojan War. Although mortal when born, the goddess Thetis tried to make him immortal by dipping him in the river Styx. Ostensibly to ensure he did not drown, she held him by the heel during the process – and so his heel was never submerged. As a result, Achilles’ heel was the only vulnerable spot on his body and he eventually died only when shot there with an arrow. From this tale has arisen the term ‘Achilles Heel’ to refer to a spot of particular vulnerability. The story of Achilles comes to mind when thinking of the approach most charities take toward formatting their receipts. The recent Afovia v. The Queen, 2012 TCC 391 case being the most recent instance.
Afovia was a case where the taxpayer in question had contributed to a charity through a leveraged donation tax shelter program. And, as is the case with so many other programs of the type, the CRA disallowed the donation for reasons related to the structure of the program. However, included in the list of reasons was that the charitable donation receipt itself did not meet the technical requirements of a receipt. This is a reference to the list included in Regulation 3501 of the Income Tax Act which states the following:
3501. (1) Every official receipt issued by a registered organization shall contain a statement that it is an official receipt for income tax purposes and shall show clearly in such a manner that it cannot readily be altered,
(a) the name and address in Canada of the organization as recorded with the Minister;
(b) the registration number assigned by the Minister to the organization;
(c) the serial number of the receipt;
(d) the place or locality where the receipt was issued;
(e) where the donation is a cash donation, the day on which or the year during which the donation was received;
(e.1) where the donation is a gift of property other than cash
(i) the day on which the donation was received,
(ii) a brief description of the property, and
(iii) the name and address of the appraiser of the property if an appraisal is done;
(f) the day on which the receipt was issued where that day differs from the day referred to in paragraph (e) or (e.1);
(g) the name and address of the donor including, in the case of an individual, his first name and initial;
(h) the amount that is
(i) the amount of a cash donation, or
(ii) where the donation is a gift of property other than cash, the amount that is the fair market value of the property at the time that the gift was made;
(i) the signature, as provided in subsection (2) or (3), of a responsible individual who has been authorized by the organization to acknowledge donations; and
(j) the name and Internet website of the Canada Revenue Agency.
That there was a defect in the receipts will not surprise anyone that works with charities on a regular basis. Neither is it surprising that they were cited as a reason for revocation as the CRA routinely lists every infraction to support its decision to revoke. But individual charities should pay attention to the fact that the Judge found that these defects themselves were sufficient grounds for disallowing the receipts. Presumably, had the charity been the Appellant the Court would have equally found that it justified revocation.
While the Charities Directorate does have guidelines which attempt to match the severity of the infraction with the punishment technically any breach of the rules for a charity can result in its revocation. But as this case shows, if a charity finds itself at the Court level it could in theory win on the substantive question yet still lose its registration on the technical wording of its receipts. Such a situation brings up another old phrase a “Pyrrhic Victory”.
Drache Aptowitzer LLP