2020-0855601E5 CEWS - Extraordinary item - charitable campaign

Principal Issues: Whether donations received by a charity as part of a campaign to raise funds to support its objectives during COVID-19 is an extraordinary item to be excluded from “qualifying revenue.” 2. For purposes of the election available under subparagraph 125.7(1)(a)(ii) of the definition of “qualifying revenue”, is funding received from a municipal government included in “government sources”?

Position: 1. Question of fact, but likely not in this case. 2. Yes.

Reasons: See below.

Author: Ross, Matthew
Section: 125.7

XXXXXXXXXX                                                                                                    2020-085560
                                                                                                                            Matthew Ross, CPA, CA
December 15, 2020

Dear XXXXXXXXXX:

Re:  Donations and the Canada Emergency Wage Subsidy

We are writing in response to your questions concerning the Canada Emergency Wage Subsidy (“CEWS”) provided under section 125.7 of the Income Tax Act (“the Act”). Our understanding is that your organization is a registered charity (“the Charity”) that provides XXXXXXXXXX.  In response to the COVID-19 pandemic, the Charity undertook a special campaign (“the Campaign”) and reached out to current and prospective donors and other supporters for funding.  You noted that the Campaign is XXXXXXXXXX.

The Campaign has resulted in a large increase in the Charity’s donation revenue as:

*    Some regular donors gave larger amounts than in the past.
*    Some new donors provided gifts.
*    Some regular donors gave earlier in the year than usual.

You have asked whether the Campaign donations may be excluded from the Charity’s “qualifying revenue” as “extraordinary items.”

You have also asked whether funding received from a municipal government may be excluded from the Charity’s “qualifying revenue.”

Our comments

This technical interpretation provides general comments about the provisions of 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. 

Qualifying revenue of an eligible entity (“eligible employer”) for purposes of the CEWS means the inflow of cash, receivables, or other consideration arising in the course of its ordinary activities in Canada in a particular period. These inflows are generally from the sale of goods, the rendering of services, and the use by others of the eligible employer’s resources.

Subparagraph (a)(ii) of the definition of qualifying revenue in subsection 125.7(1) of the Act provides that an eligible employer that is a registered charity may elect to exclude funding received from government sources in the determination of its qualifying revenue for all of its prior reference periods and current reference periods.  In our view, “funding received from government sources” includes amounts from federal, provincial/territorial and municipal governments.

Paragraph (c) of the definition of qualifying revenue in subsection 125.7(1) of the Act states that, for greater certainty, qualifying revenue excludes extraordinary items.

“Extraordinary items” is not defined in the Act.  Generally, we would expect an extraordinary item to meet all three of the characteristics described in Question 6-2 on the Canada.ca webpage, Frequently asked questions – Canada Emergency Wage Subsidy (CEWS)(“FAQ”).

As outlined in the FAQ, an extraordinary item would not generally include transactions that are similar in nature or source to one that has occurred in the recent past or can be expected to occur in the foreseeable future.  Also, where a transaction is typically part of the normal activities of an eligible employer, it would not be considered an extraordinary item.

Generally, the determination of whether revenue is excluded from qualifying revenue as an extraordinary item is a question of fact.  However, in our view, the solicitation and receipt of donations is part of the Charity’s normal activities in the ordinary course of its operations. Accordingly, we would not consider the Campaign donations to be extraordinary items.

We trust our comments will be of assistance.

Yours truly,

Pamela Burnley, CPA, CA
Manager
Business Income and Capital Transactions
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

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