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Issuing Tax Receipts

By Craig Stevenson

Introduction

The Income Tax Act encourages taxpayers to support the activities of registered charities and certain other organizations by allowing gifts to such organizations to qualify for a tax credit. A charity will keep its registration if it complies with the requirements of the Act. In particular, it must issue official donation receipts in accordance with the Income Tax Act and the Income Tax Regulations.

The comments contained in this document are based on the following Canada Customs and Revenue Agency (CCRA) publications:

• Interpretation Bulletin IT-110R3 - Gifts and Official Donation Receipts
• Interpretation Bulletin IT-297R2 - Gifts in Kind to Charity and Others
• Tax Guide RC4108 - Registered Charities and the Income Tax Act (Draft)
• Registered Charities Newsletter - Winter 1992-93 - No. 3.

General Rule

A gift is made and a receipt may be issued if all three of the conditions listed below are satisfied.

• Some property, either in the form of cash or a gift-in-kind, is transferred by a donor to a registered charity;
• The property is given voluntarily. The donor must not be obliged to part with the property, for instance as the result of a larger contract or a court order; and
• The donor is transferring the property to the charity without expecting anything in return. No benefit of any kind may be provided to the donor or to anyone designated by the donor as a result of a gift.

In all cases, the general rule will be applied to determine whether a particular payment entitles the payer to an official donation receipt. However, the descriptions of events (below) will provide some guidelines to office staff, volunteers and anyone else involved with fundraising events or the issuing of official donation receipts.

If a particular event does not exactly fit these descriptions, seek professional assistance or contact CCRA, Client Assistance Section, Charities Division at 1-800-267-2384.

Type of Event	What the Charity Receives	Receipt	Comments	Reference
Dinner	Price of admission.	Yes	For the amount paid in excess of the value (not cost) of any food, entertainment and other services or consumable goods included in the price of admission.	IT-110R3, para. 5
Dinner coupled with an auction	Price of admission that includes dinner and auction.	No		IT-110R3, para. 5
Dinner coupled with a lottery or draw	Price of admission that includes dinner and draw.	No	Exception: Where the prizes or awards have only nominal value.	IT-110R3, para. 8
Concert or Show	Price of admission.	Yes	For the amount paid in excess of the value (not cost) of any food, entertainment and other services or consumable goods included in the price of admission.	IT-110R3, para. 5
Concert or Show coupled with a lottery or draw	Price of admission that includes concert or show and draw.	No	Exception: Where the prizes or awards have only nominal value.	IT-110R3, para. 8
Golf Tournament	Price of admission.	Yes	For the amount paid in excess of the value (not cost) of any food, entertainment and other services or consumable goods included in the price of admission.	IT-110R3, para. 5
Golf tournament coupled with a lottery or draw	Price of admission that includes golf tournament and draw.	No	Exception: Where the prizes or awards have only nominal value.	IT-110R3, para. 8
Auction	Price of admission.	No		IT-110R3, para. 5

 

Type of Event	What the Charity Receives	Receipt	Comments	Reference
Any Event	Donated services.	No	There is nothing to prohibit a charity from paying for services and later accepting the return of all or part of the payment provided it is returned voluntarily. However, since the donor must also account for the taxable income that would be realized as remuneration, there is no real tax benefit to the donor and one must question the donor's motives for requesting a receipt.	IT-110R3, para. 15(c)
Any Event	Low value items.	No	Examples: Hobby crafts or home baking.	Newsletter No. 3
Any Event	Selling price of goods or services at fair market value.	No		IT-110R3, para. 15(e)
Any Event	Selling price of goods or services in excess of fair market value.	No	Exception: An official receipt may be issued if the goods or services have only nominal value.	IT-110R3, para. 15(e)
Any Event	Payments or gifts of merchandise or supplies from a business whereby the business receives a material advantage.	No	A material advantage may include, but is not limited to, promotion or advertising in return for the gift. For taxation purposes, the business may be able to claim the contribution instead as an advertising expense.	RC4108 and Newsletter No. 3

 

Type of Event	What the Charity Receives	Receipt	Comments	Reference
Any Event	Business inventory.	No	Gifts of business inventory are allowable gifts in kind. However, if the business claims a deduction for the donation it must also claim the same amount as income. Since a donation receipt provides no real tax benefit to the business, one must question the donor's motives for requesting a receipt. For taxation purposes, the business automatically receives a deduction from income through its cost of goods sold.	Newsletter No. 3
Any Event	Gifts in kind.	Yes	For purposes of issuing an official donation receipt, the fair market value of a gift in kind is determined as at the date of the donation; i.e., the date on which beneficial ownership is transferred from the donor to the Charity. If the gift is likely to be valued at $1,000 or less, the Charity may prefer to have one of its qualified staff or volunteer members evaluate the gift. For higher value items, an independent appraiser should be consulted. Caution: Be wary of in-kind gifts that have been arbitrarily assigned a value of $1,000. This is a common feature of art flip schemes, for example, whereby the "donor" purchases artwork in bulk quantities for under $400 a piece and donates them individually with an appraised value of $1,000 a piece.	IT-297R2, para. 6 and Newsletter No. 3

Other Events

Where the cost of admission to an event exceeds the fair market value of the services or consumable goods available to the participant, the difference may be considered a gift if:

• the equivalent of the services or consumable goods are readily available in the marketplace;
• the services or consumable goods, by their very nature, are necessarily purchased with the intention that they be used on a specific date in the near future; and
• the services or consumable goods, if not used, have no resale value.

However, receipts are not to be issued where the cost of admission includes participation in a lottery or draw for prizes or awards, which have more than a nominal value. The amount in excess of the fair market value of the price of admission for the event is presumed to be the cost of participation in the lottery or draw and not a gift.

Reference: IT-110R3, para. 5

Fair Market Value

The fair market value of admission should be determined by making a comparison to the regular or usual charge for attendance at the same or a similar function or event for which a donation is not solicited. In the absence of a comparable event, the value is the estimated price that would have been charged for a function or event of this nature carried out as a profit-making venture.

Reference: IT-110R3, para. 7

Nominal Value

A benefit is considered to have nominal value where the fair market value does not exceed 10% of the amount of the gift to a maximum of $50.

A benefit is not considered to have nominal value where its fair market value is uncertain for reasons such as:

1. the benefit is not readily available on the open market (e.g. the right to personally meet a famous person); or
2. there is no certainty that the benefit will be exercised (e.g. the right to a discount on the purchase of specific goods or services).

Reference: IT-110R3, para. 11-12

Lottery or Draw

Payment for a lottery ticket or other chance to win a prize is not a gift. A lottery may be run in conjunction with another fundraising event without prejudicial effect if the lottery tickets can be purchased without any requirement that the ticket purchaser also make a donation to the fundraising event. Official receipts may then be issued for such donations to the fundraising event but not for the lottery tickets.

Reference: IT-110R3, para. 15(c)

Separation of Purchase and Gift

In certain circumstances, a donor can both purchase something from a charity and make a gift. There must be two separate transactions, which are independent of each other. Where the donor can only purchase the item if a contribution is made, that contribution is not a gift and an official receipt may not be issued for it.

Where, however, anyone can purchase the item without making any other payment, an additional contribution made by a purchaser is a gift and an official receipt may be issued for the additional contribution but not for the purchase price.

Whether or not one transaction is dependent upon the other is a question of fact. All such arrangements should be referred to a professional advisor prior to making any commitments with regard to the issuing of official donation receipts.

If there are any doubts about a particular proposal, the facts should be presented to CCRA, Client Assistance Section, Charities Division at 1-800-267-2384.

Reference: IT-110R3, para. 13-14

Craig Stevenson is a financial advisor with Action Financial Planning, an affiliate of Avalon Financial Services Corp., who specializes in planned giving for Canadian donors and charities. For more information about planned giving, visit his website at www.home.golden.net/~stevenc, e-mail stevenc@golden.net, or call toll free at 1-87PLANGIFT (1-877-526-4438).

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