2018-0761161E5 Reward Donation Program

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA. Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: Two issues related to several variations on a gifting program involving the donation by individual customers of rewards received from merchants: (1) Whether individual customers would be considered to be the "donors" of amount directed to a registered charity. (2) Whether merchants would be able to deduct any rewards paid under the program in calculating income for tax purposes.

Position: General comments only.

Reasons: Determinations will depend on facts and legal effect of transactions entered into by the parties involved in the gifting programs.

Author: Campbell, Alison
Section: 118.1, 9, 18, 67

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                                                                                                                                                                  Alison Campbell
February 28, 2019


Re:  Donation Program

This is in reply to your email of April 25, 2018 and letter of May 21, 2018 wherein you requested comments on who would be considered the donor of amounts received by a registered charity under a number of different donation programs. We apologize for the delay of our response.

In general terms, under the programs described in your letter, merchants offer rewards to customers for visiting the merchants’ stores. A customer has the option of receiving the reward directly or having the reward donated to a registered charity supported by the merchant. If the customer chooses to have the reward donated, the store will make the payment to the registered charity. As an alternative to the merchant operating the reward program, a marketing company may be utilized by the registered charity to carry out the reward program, as a fundraising measure. In this regard, the marketing company will track and collect the rewards from the stores and pay the rewards to the customer or registered charity, as the case may be. Another alternative you suggested would involve the registered charity operating the reward program itself as a fundraising activity. The registered charity would track and collect rewards from the stores and pay any reward amounts owing to customers of the store to those customers.

You also asked for our views on whether merchants who participate in the program would be able to deduct their expenses under the program in calculating their income for tax purposes.

Our Comments

This technical interpretation provides general comments about the provisions of the Income Tax Act (the “Act”) and related legislation (where referenced). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R8, Advance Income Tax Rulings and Technical Interpretations.

The tax consequences to participants in any particular donation program depends on the legal relationships created among the participants under the relevant agreements. The particular facts related to any transaction undertaken by a taxpayer with regards to such programs would also need to be considered in determining the tax consequences that may apply. We are prepared however, to provide you with the following general comments.

Charitable Donation Tax Credits and Deductions

An individual donor is allowed a non-refundable tax credit under section 118.1 of the Act for the eligible amount of a gift the donor makes to a qualified donee. The eligible amount of a gift is defined as the amount by which the fair market value of the property that is the subject of a gift exceeds the amount of the advantage, if any, in respect of the gift. The definition of qualified donee in subsection 149.1(1) of the Act includes registered charities.

As explained in Income Tax Folio S7-F1-C1, Split Receipting and Deemed Fair Market Value, because the term gift is not defined in the Act, it is necessary to refer to the applicable common or civil law for its meaning. Under the common law, "a gift is a voluntary transfer of property owned by a donor to a donee, in return for which no benefit or consideration flows to the donor" (The Queen v Friedberg, [1992] 1 CTC 1, 92 DTC 6031 (FCA)). Generally, for purposes of section 118.1, a gift under common law is made if a taxpayer has donative intent, and all three of the following conditions are satisfied:

*    there must be a voluntary transfer of property to a qualified donee;

*    the property transferred must be owned by the donor; and

*    no benefit or consideration must flow to the donor.

In assessing whether these conditions are satisfied, it is necessary to determine who the donor is in any particular situation. In the situations you described, an individual is offered property (i.e., rewards) that they can either choose to receive personally, or they can request that the property be given to a particular registered charity. Based on the conditions set out above, to be considered the donor, the individual must be the legal owner of the property immediately before the property is transferred to the registered charity. Whether an individual customer becomes the owner of the reward immediately before the reward is transferred to the registered charity under the situations you describe will be determined by the legal effect of the transactions involved in operating the programs.

Further information on determining whether a gift has been made, the rules related to advantages, and determining the eligible amount of a gift, can be found in Income Tax Folio S7-F1-C1.

For more information on fundraising activities carried on by registered charities, please refer to Charities Guidance CG-013, Fundraising by Registered Charities.

Deductibility of Rewards Paid by Merchants

In each of the situations you described, it appears that there is a merchant that will fund the property offers (i.e., rewards) made to individuals that the individuals may choose to keep or have donated to a registered charity. Under subsection 9(1) of the Act, a taxpayer's income from a business or property is the "profit" therefrom for the year, subject to the particular rules set out in Part I of the Act. For instance, paragraph 18(1)(a) of the Act provides that no outlay or expense is deductible in computing the income of a taxpayer from a business or property, unless it was made or incurred for the purpose of gaining or producing income. Further, paragraph 18(1)(b) of the Act denies the deduction of outlays and payments on account of capital.

The deduction of any outlay or expense that was made or incurred for the purpose of gaining or producing income from a business or property is also subject to the general rule in section 67 of the Act that such outlays or expenses be reasonable in the circumstances.

We trust our comments will be of assistance.

Yours truly,


Bob Naufal
Financial Institutions Section
Financial Industries and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

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