We are a Canadian Charity in the poverty sector, operating out of British Columbia, Vancouver to be specific. We recently received a sizable donation from a shady individual who has proceeded to publicize his contribution to our Charity. We would like to return the donation and dissasociate from him.
Q. Are we allowed by Canadian Law to return a donation or gift to a donor?
Short Answer: Generally, No...
Comprehensive Answer: Generally, a Charity cannot return a donation or gift that is has received. Why? Because a gift transfers ownership to the Charity, and the Charity's purposes in it's constating and governing documents will require it to use the donation to further its charitable purposes. For more detailed guidance from the CRA, see here: http://www.cra-arc.gc.ca/chrts-gvng/chrts/plcy/cgd/rtrng-dntd-prpty-eng.html
Follow up question: So what are our options?
Answer: One option is to make a court application to return the donation to the donor. A second option is to transfer the donation to another Registered Charity. But note, a Charity may only do so if your governing or constating documents allow assistance to other Registered Charities.
Note: Where a Charity fundraises for a special project and later reneges on the project, whether intentionally or because of matters beyond its control, the donations would have to be returned to the donors (unless the Charity made it clear to the potential donors that the donations will be used for other projects if the said project doesn't materialize).
Final note on this matter: When a donation is returned to the donor, an amended tax receipt must be issued to the donor.