NEW RULES FOR CANADIAN MUNICIPALITIES AND FOREIGN UNIVERSITIES

By Adam Aptowitzer

It may come as a surprise to some, including those affected by it, but donations to Canadian municipalities and certain foreign universities result in tax credits similar to gifts to Canadian registered charities. While all municipalities have this ability only foreign universities which meet certain criteria qualify (for a current list of the universities click here). In the case of municipalities, at least in the past, there were no ongoing compliance requirements and their status as tax receiptable organizations could not be revoked. Indeed, even foreign universities had little reason to worry about having their status revoked. However, recent changes to the Income Tax Act threaten to change the status quo quite dramatically.

Because the CRA effectively had no authority to revoke the tax receipting privileges of these organizations it could not ensure the correctness of the receipts issued by them. This became a bigger concern when some universities and municipalities developed some notoriety regarding their receipting practices (although it is unclear how big of a problem this really meant to the integrity of the donation tax credit system). These entities will now be required to comply with the same general receipting requirements as those of registered charities.  This includes for example, the rules regarding eligible amounts, the form in which receipts are issued, and the keeping of proper books and records.

In particular, the requirement for the keeping of proper books and records is to ensure that gifts are made - and spent - in accordance with Canadian charity law. This may be a more serious problem for foreign universities than for Canadian municipalities. One would imagine that specifically for the larger schools such reporting requirements really is a case of the tail wagging the dog and puts an onerous administrative burden on the foreign schools to keep track of what may be proportionally small amounts of money relative to the universities general fundraising.

The consequence of transgressing any these rules is potential revocation of the entity's right to issue tax receipts. For example, if the city of Toronto were to contravene certain elements of the Income Tax Act in this regard the CRA could revoke its ability to issue receipts that qualify for donation tax credits.  What is worrying though is that the new rules do not seem to contain any allowance for re-registration once the organization has lost its status.  So, if the city of Toronto were to lose its status the question remains how it could be regained.  Fundamentally this is concerning from a political perspective too because the federal government now includes one additional tool to control the fundraising of municipalities.

As always the Drache Aptowitzer LLP team remains available to provide counsel to both Canadian municipalities and foreign universities in their attempts to comply with these new rules.