Glossary

Note: The concepts described in these pages represent a general description and may include proposed changes to the Income Tax Act which are being administered by the Canada Revenue Agency (CRA). For more technical definitions of these concepts, you may wish to consult the Income Tax Act or contact the CRA.

• Advantage
• Arm's length
• Business Number (BN)/Registration Number
• Capital gain
• Capital loss
• Capital Property
• Charitable organization
• CRA
• Designation
• Donation
• Eligible amount of gift for tax purposes
• Encrypted
• Fair market value
• Gift
• Gift in kind
• Non-profit organization
• Official donation receipt
• Private foundation
• Public foundation
• Qualified donees
• Registered charity
• Registered charity information return
• Securities
• Tax shelter
• Trust

Advantage - An advantage is generally the total value of all property, services, compensation, or other benefits that a person is entitled to receive in relation to a donation. The advantage may be conditional or receivable in the future, either by the donor or a person or partnership not dealing at arm's length with the donor.

For donations made after February 18, 2003, an advantage also includes any limited-recourse debt relating to the donation at the time it was made.

Arm's length - At arm's length is a concept describing a relationship in which the parties are acting independently of each other. The opposite, not at arm's length, includes individuals who are related to each other by blood, marriage, adoption, and common-law relationships. Not at arm's length also covers people acting in concert without separate interests, such as those with close business ties.

Business Number (BN)/ Registration Number - The BN is used by the federal government to identify organizations and the various program accounts they have. A complete BN has two parts: the registration number (first nine digits) and the account identifier (two letters and four digits). The registered charity account identifier always starts with the letters "RR".

Capital gain - You have a capital gain when you sell, or are considered to have sold or have disposed of, a capital property for more than the total of its adjusted cost base and the outlays and expenses incurred to sell the property.

Capital loss - You have a capital loss when you sell, or are considered to have sold or have disposed of, a capital property for less than the total of its adjusted cost base and the outlays and expenses incurred to sell the property.

Capital Property - Includes property that, if sold or otherwise disposed of, could result in a capital gain or a capital loss. You usually buy it for investment purposes or to earn income. Capital property does not include the trading assets of a business, such as inventory. Capital property may include:

• cottages;
• securities, such as stocks, bonds, and units of a mutual fund trust; and
• land, buildings, and equipment you use in a business or rental operation.

Charitable organization - A charitable organization (such as a hospital) primarily carries on its own charitable activities. It can be a corporation, or it can be established by a constitution or a trust document. A charitable organization must have an arm's length board of directors and generally receives its funding from a variety of arm's length sources.

CRA - CRA stands for the Canada Revenue Agency. The Canada Revenue Agency is the body of the federal government that administers the Income Tax Act and the Excise Tax Act. It is responsible for registering charities in Canada.

Designation - Under the Income Tax Act, there are three types of designation for registered charities: charitable organization, public foundation, and private foundation. The designation of a registered charity depends on its structure, its source of funding, and the charity's mode of operation.

Donation - See gift.

Eligible amount of gift for tax purposes - The eligible amount of a gift for income tax purposes is the amount that a donor can claim on his or her tax return. Generally, this is the amount by which the fair market value of the donated property exceeds the amount of an advantage, if any, in respect of the donation.

Encrypted - Many registered charities accept donations online through an electronic transfer of funds. An encrypted page ensures that any data you transmit (such as your credit card number) will not be readable by others. On an encrypted Web page, the letters https:// rather than http:// should precede the page's URL, and/or there should be an unbroken key or padlock symbol located in the bottom right corner of your Web browser.

Fair market value - Fair market value generally means the highest price, expressed in dollars, that a property would bring in an open and unrestricted market between a willing buyer and a willing seller who are both knowledgeable, informed, and prudent, and who are acting independently of each other.

Gift - Generally, a gift is a voluntary transfer of property without valuable consideration to the donor. Under proposed legislation, a transfer of property for which the donor receives an advantage will still be considered a gift in certain circumstances and the donor can claim the eligible amount.

Services provided to a registered charity are not considered gifts because services are not property. Pledges are not considered gifts until the donor honours them.

Gift in kind - The term gift in kind refers to a gift of property other than cash - in particular capital property, depreciable property and personal-use property. It also includes a residual interest, a right of any kind, a licence, a share, and inventory of a business. It does not include a gift of services.

Non-profit organization - Under the Income Tax Act, a non-profit organization is an association, club, or society operating exclusively for social welfare, civic improvement, pleasure, recreation, or any other purpose except profit. It is not a charity.

Official donation receipt - Registered charities can issue official donation receipts (also referred to as "tax receipts") to acknowledge gifts. An official donation receipt is subject to particular requirements under the Income Tax Regulations including identification that it is an official receipt for income tax purposes. See the definition "eligible amount of gift" for further information. To view sample receipts see Sample official donation receipts.

Note
Registered charities issue other forms of receipts to acknowledge acceptance of services or items that are not gifts. These are not tax receipts and should be clearly distinguished from the tax receipts issued to acknowledge gifts. Contributions of services, that is, of time, skills, or efforts, are not property. Therefore, they do not qualify as gifts for purposes of issuing official donation receipts. Accordingly, a charity cannot issue an official donation receipt for services rendered free of charge. For more information, see Policy Commentary CPC-017, Gifts of Services.

Private foundation - A private foundation may either carry out its own charitable activities or it may give funds to other qualified donees, usually other registered charities. It must be established either as a corporation or a trust. A registered charity will be designated a private foundation if 50% or more of its directors or trustees do not deal with each other at arm's length, and/or more than 50% of the capital is contributed by a person or group of persons not dealing with each other at arm's length.

Public foundation - A public foundation (such as a hospital foundation) generally gives more than 50% of its income annually to other qualified donees, usually other registered charities. It must be established either as a corporation or a trust, and more than 50% of directors/trustees deal with each other at arm's length. A public foundation generally receives its funding from a variety of arm's length sources. It may carry out some of its own charitable activities.

Qualified donees - The Income Tax Act permits qualified donees to issue official tax receipts for donations they receive from individuals or corporations. Registered charities are one example of a qualified donee. Others include Canadian municipalities and registered Canadian amateur athletic associations. For more examples of qualified donees, read Which donations can I claim?

Registered charity - A registered charity means a charitable organization, public foundation, or private foundation that was established in Canada and is resident in Canada. It is operated for charitable purposes and must devote its resources to charitable activities. A registered charity has received a Registration Number from the Canada Revenue Agency and is exempt from paying tax on its revenue. It can issue donation receipts for gifts that it receives.

Registered charity information return - All registered charities are required to fill out a T3010 - Registered Charity Information Return, each year and submit it to the Canada Revenue Agency. The return provides information about the registered charity, including contact information, a general account of the registered charity's activities, and financial information such as income, expenditures, assets, and liabilities.

Securities - For the purpose of completing the T5008 information return, securities mean:

• publicly traded shares of the capital stock of a corporation;
• publicly traded debt obligations;
• debt obligations of, or guaranteed by:
  • the Government of Canada (such as treasury bills);
  • the government of a province or territory or its agents;
  • a municipality in Canada;
  • a municipal or public body performing a function of government in Canada; or
  • the government of a foreign country or a political subdivision of a foreign country, including a local authority of such a government;
• publicly traded interests in a partnership or a trust;
• any option or contract for any of the properties listed above;
• publicly traded options or contracts for any property including any commodity;
• publicly traded options or contracts for financial futures, foreign currency, or precious metal; and
• publicly traded options or contracts for any index relating to any property.

Tax shelter - According to the Income Tax Act, a tax shelter is generally defined as any property or gifting arrangement for which a promoter represents that an investor can claim deductions or credits that equal or exceed the cost of the property less certain benefits within a four-year period.

Also, a gifting arrangement where the donor incurs a limited-recourse debt related to the gift will be a tax shelter. Generally, a limited-recourse debt is a debt where the borrower is not at risk for the repayment.

Read more about tax shelters.

Trust - A binding obligation enforceable by law when undertaken. It may be created by one of the following:

• a person (either verbally or in writing);
• a court order; or
• a statute.

Generally, a trust is created when it is properly established and there is certainty of:

• the intent to create a trust;
• the property to be placed in trust; and
• who the beneficiaries of the trust are.