Rescinded [2009-10-01] - Financial considerations to be made when receiving funds through donations - Information Bulletin - 1998-05-14

Date modified: 1998-05-14

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May 14, 1998


Senior Financial Officers and Senior Full-time Financial Officers


Departmental Legal Advisors


Financial considerations to be made when receiving funds through donations


This bulletin should not be construed as encouragement of, or approval for, departments to seek or solicit funds through donations. When considering receiving funds through donations, departments must first ensure that this is appropriate nd consistent with their mandate.


With the expenditure reductions announced in recent budgets, departments are intensifying their search for ways to reduce program costs and increase other sources of funding. Occasionally, additional funds are obtained through contributions, gifts, bequests or other donations. For instance, scientific and research initiatives are sometimes partially funded by donations from interested non-federal government parties. The purpose of this bulletin is to provide departments with a description of the factors they must consider when receiving and administering such funds.

As mentioned previously, it is important that departments ensure that receiving funds through donations is appropriate and consistent with their mandate. If it is, ways of doing so include:

  • a department soliciting contributions or donations itself; or
  • having an independent, not-for-profit 'friends of ...' organization raise the funds.

When exploring either of the above methods, departments should be aware of the following considerations.

General Considerations

Although not directly related to financial management and control, attention should be paid to the necessity of searching out 'new money' and/or non-traditional sources of revenue. There could be a negative reaction, however, from public and other organizations that traditionally rely on donations. These organizations may perceive - or even complain publicly - that the federal government, despite its broad taxation powers, is cutting into their donation revenues.

Purpose of the Donation

  • The acceptance of a donation involves certain explicit and implicit obligations on the part of the Crown. These obligations reflect the purposes and terms and conditions under which the donation is made and accepted. Depending on the specifics of the terms and conditions, the eligibility of the donation for an income tax deduction or credit may also be affected. Departments should therefore establish, at the outset, clear guidelines on what types of donations will and will not be accepted. Revenue Canada should be consulted when formulating guidelines or prior to issuing receipts for conditional gifts.
  • Donations must be for purposes consistent with the department's mandate and cannot be transferred to offset an expenditure from a voted authority or applied toward the cost of ongoing operations like salaries, wages and benefits of public servants chargeable to an appropriation. Donated funds can, however, be used to hire temporary staff, consultants or contract personnel, provided that the payments are made directly from a specified purpose account and do not 'flow through' an appropriation.
  • It should also be remembered that, from a government-wide perspective, donations are not entirely 'free'. If a tax receipt is issued and the donor claims an income tax credit or deduction, there is a cost to the treasury in terms of foregone tax revenue.
  • The Repayment of Receipts Regulations require donations to be returned to the donor, where possible, if they cannot be used in accordance with the terms and conditions under which the donations were made and accepted. Revenue Canada should be consulted regarding the return of a donation. If a return is not possible, then the money remaining would go into the Debt Servicing and Reduction Account.

Donations and Other Revenues

  • Donations are usually in the form of money, goods or property given to the federal government in return for which the donor receives nothing substantive. For example, money received through a partnership arrangement with the Crown would not qualify as a donation because both partners benefit from the arrangement. Where a donation is in the form of property or goods, its value must be determined in accordance with procedures established by Revenue Canada. (See IT-110R3 Gifts and Official Donation Receipts; IT-297 Gifts in Kind to Charity and Others; and P113 Gifts and Income Tax.) Due to potential liability and other legal issues, departments should consult with their legal advisors before accepting gifts of property.
    • Care must also be taken to distinguish between true donations and revenues from concession, licensing or other royalty arrangements, and to ensure that:
      • no advantage is conferred on anyone making a donation, apart from a tax receipt, where applicable, and possibly some form of public recognition or acknowledgement;
      • no pressure is placed on departmental suppliers and clients; and
      • making a donation does not become a precondition to doing business with the department.
    • In particular, the items below would not qualify as donations and be treated as specified purpose funds. The following are ordinary non-tax revenues, to which the normal rules regarding revenues apply:
    • registration and entry fees, licensing fees and royalties;
    • concession fees and revenues;
    • fees for booth or exhibit space;
    • advertising revenues;
    • any revenue where the payee receives goods or services of more than purely nominal value; and
    • anything received that does not qualify for a tax receipt as a "gift to the Crown" in accordance with Revenue Canada rules.

Accounting and Reporting

  • Contributions, gifts, bequests and other donations to the Crown are not trust or endowment funds, but "moneys received for a specified purpose" that must be deposited as such into a specified purpose account in the Consolidated Revenue Fund, and treated as "restricted-use revenue" in the accounts.

    Note: In accordance with paragraph 4(d) of the Debt Servicing and Reduction Account Act, S.C. 1992, c. 18, unconditional gifts and gifts for which no purpose was specified are to be treated as non-tax revenue. They should be credited to the Debt Servicing and Reduction Account and applied to deficit reduction.

  • If revenues received from donations are significant or a department embarks on a specific project to solicit donations, then the revenues and expenditures associated with the project should be reported in their Business Plan and in the Public Accounts of Canada.

Administrative Costs

  • Unless a particular donation is specifically earmarked by the donor to be applied towards the administrative costs of the donation program, all fees, commissions and administrative expenses relating to the solicitation and management of donations would be an operating expense of the department.
  • No interest would accrue or be paid on the balance in the account.

Tax Implications

To qualify as a charitable gift under the Income Tax Act, the transfer of funds or property must be voluntary and given without consideration or any expectation of return or refund. If the gift, bequest or donation of money or other property (but not 'services') is made to the Crown or to an agent thereof for the use of the Crown by a donor corporation, that corporation will usually qualify for a deduction; an individual donor will be entitled to a tax credit. The donor must provide Revenue Canada with official receipts containing the information required by subsection 3501(1.1) of the Income Tax Regulations.

Where the gift, bequest or donation is indirect (i.e. to a 'friends of ...' or similar organization which is not acting on behalf of the government in an agency capacity), then that organization, and not the department, would be responsible for issuing the tax receipt if it is a registered charity in its own right.

Where the department is merely acting as a conduit for funds or property intended for a third party (e.g. property given to a department on condition that it be turned over to, or used by, someone else), the transaction would not qualify for a tax receipt. The third party could, however, issue a tax receipt, provided it qualifies as a donee under Revenue Canada rules.

As mentioned earlier, donations that do not qualify under the Income Tax Act and related rulings as either a gift, bequest or donation to the Crown cannot be treated as Specified Purpose Funds in the form of a donation, but must be classified as non-tax revenue.

Tax questions of an administrative nature with respect to gifts, bequests and donations to the Crown, such as what qualifies for a tax receipt and the valuation for tax purposes of 'gifts in kind', should be directed to the Director of the Charities Division of Revenue Canada at (613) 954-0931. Related tax policy questions should be directed to the Department of Finance Canada.

Additional Considerations

Use of Contractors

  • While doing so is not recommended or encouraged, in special and exceptional circumstances a contractor may be used to raise money for a department. The gross amount collected is all public money for which the donor would be entitled to a full receipt, and any fees or commission payable to the contractor are operating expenses chargeable to the departmental appropriation. This holds true regardless of whether an actual payment is made or the amount due the contractor is simply deducted or withheld from the amount turned over to the department.

Note: Withholding funds in this manner requires an authority either in legislation or through regulations.

  • It is strongly recommended by both the Treasury Board of Canada Secretariat and Revenue Canada that the contractor be paid a fixed sum or at an hourly or daily rate for services, and not on the basis of a percentage of the amount raised or collected.

Not-for-Profit Organizations

Where a not-for-profit organization raises funds, some or all of which are turned over to the government, there are several additional considerations as outlined below.

  • Such organizations must be independent of the Crown (i.e. neither under the Crown's direction or control nor acting in or deemed to be acting in - an agency capacity). In particular, departments must ensure that the prohibitions of paragraphs 90(1)(a) and (b) of the Financial Administration Act, as modified by the exception of section 92 (1.1), against incorporation and acquiring shares of an organization are fully respected. This includes 'membership interest' if the Crown appoints a majority of the members of the board of directors or otherwise acquires control. Departments should consult with their legal advisors on this matter.
  • The organization may potentially have two principal means of raising funds: for-profit activities (i.e. concessions, sales of souvenirs, galas, etc.) and direct donations. Unless exempt in its own right or through the special rules applying to registered charities, GST/HST would apply to the for-profit activities and have to be charged, collected and remitted in the usual fashion. The purchaser would not be entitled to an income tax receipt unless there was a built-in donation or 'gift' to the Crown. For example, a person pays $100 for a ticket to a gala. Of that $100, $75 represents value received and $25 represents a donation. In this case, the person could claim a tax receipt for the $25 'donation' portion. Revenue Canada recognizes a narrow range of activity having both a payment and gift component. The publication Gifts and Official Donations Receipts (IT-110R3) describes the eligible situations which include a fundraising event such as a "dinner, ball, concert, show or like event". Revenue Canada has interpreted the term "like event" restrictively.
  • Any lease, concession, licensing or royalty fees payable to the department by the organization are not "money received for a specified purpose", but simply normal non-tax revenues from leases, concessions, licences or royalties, as the case may be; and
  • What could be considered "money received for a specified purpose" is any moneys donated to the Crown by the organization from its operations, apart from any amount payable to the Crown under a lease, concession, licensing or royalty agreement. This distinction should form part of the charter and objectives of the organization, rather than an agreement with the department, otherwise, it is likely to be construed as simply another form of a licensing fee or royalty and not specified purpose money. For example, if an organization is licensed to sell souvenirs bearing a Crown logo or trademark in exchange for turning over all (or a share) of its profits, then the money paid over is non-tax revenue from licences and royalties. This holds true whether the money paid over is directly in the form of 'cash' or indirectly in the form of equipment or other goods.

Further Information

This information bulletin is available in electronic format through the Treasury Board of Canada Secretariat web site, at the following address:

Under: Information Bulletins

For further information contact Bruce Hirst, Director Financial Authorities and Planning Division, by telephone at (613) 957-7168 or by e-mail at:


  • Sections 17, 21, 90 and 92 of the Financial Administration Act
  • Paragraph 4(d) of the Debt Servicing and Reduction Act
  • Sections 110.1(1) and 118.1(1) of the Income Tax Act and regulation 3501(1.1) of the Income Tax Regulations
    • Revenue Canada Information:
    • P113 Gifts and Income Tax
    • IT-110R3 Gifts and Official Donation Receipts
    • IT-297 Gifts in Kind to Charity and Others
    • 84-3R4 Gifts in Right of Canada
  • Treasury Board policies:
    • Policy on Specified Purpose Accounts;
    • Policy on Accounting for Non-monetary Transactions;
    • Repayment of Receipts Regulations; and
    • Revenue Trust Account Regulations.
  • Treasury Board Information Bulletin "Financing Conferences and Seminars" dated November 1, 1995

J. Colin Potts
Deputy Comptroller General

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