G4. Can our Charity return a gift to a donor?
In most cases, a charity cannot return a gift. Based on the law, a gift transfers ownership from the donor to the charity. Once the transfer is made, the charity’s governing documents oblige it to use the gift in carrying out its charitable purposes.
Generally, a court application is required to alter use of a donation from the purpose originally intended. If a charity is requested, or decides itself, to return a donation, it should ensure that it has the legal authority to do so.
Exception A charity may have among its purposes the provision of assistance to other Registered Charities. If so, it may decide to transfer the gifted property to another qualified charity. As a courtesy, some charities seek a donor’s input before making such a transfer.
A charity is occasionally obliged by law to return gifts to donors. This can happen, for example, when a charity asks the public to contribute to a special project and later events make it impossible to carry out the project. Under common law, ownership of the property can revert to the donors if the project becomes impossible to fulfill.
Examples of exceptions
Assume a charity holds an fundraising appeal for a specific group of people. The project would be impossible to complete if the people died before the charity could mount its relief effort.
Assume a charity raises funds to build a new hospital wing. If the government closes the hospital, the charity would be unable to pursue its goal.
When a gift is returned to the donor, an amended tax receipt needs to be issued and the donor may have to amend the tax return on which credit for the donation was claimed.
To avoid having to return donations, when your Charity is seeking funds for a special project, it can clearly state to potential donors what it will do with the money in the event that the project cannot be carried out or more money is collected than the project requires. For example, you can say that you will apply any unused donations to your other programs.
On October 19, 2012, CRA released a new guidance concerning the return of a gift to a donor titled CG-016 Consequences of Returning Donated Property (the “Guidance”).