Tax receipts, with and without benefits

publication date: Mar 6, 2012
How do you issue correct receipts for a golf tournament, gala, auction or other occasion where supporters receive something, but part with more money than the benefits they receive are worth? The common-sense answer, says Malcolm Burrows, came about as our understanding of the law evolved.

In common law, he explained to delegates at Being Good@Doing Good*, a charitable gift has traditionally been "a voluntary transfer of property without consideration [benefit]" from a donor to a donee (charity). There was absolutely no benefit to the donor, as the tax receipt itself is not considered to be a benefit.

Because federal law has absorbed some perspectives from Quebec civil law, new rules introduced (but never officially passed) in 2002 have become the standard. A gift may now include some consideration. When it does, the eligible amount for a receipt is the fair market value (FMV) of the gift minus the FMV of any advantage to the donor resulting from the gift.

Four tests to pass

Income Tax Technical News #26 outlines the changes. The transfer of property must be voluntary and its value must be ascertainable by some objective reference or appraisal. If the donor gains an advantage, it must be clearly identified and valued. The donor must intend to enrich the charity, rather than gaining a tax advantage that exceeds the value of the gift.

When all these tests are met, the tax-receiptable portion of the gift will be the excess of the value of the property transferred to the charity over the amount of the donor's advantage - provided the advantage is not so high that it exceeds 80% of the gift.

What receipts always need to show

Whether or not a there is a benefit to the donor, receipts for gifts of cash must include -
  • a statement that it is an "official receipt for income tax purposes";
  • the name and address of the charity as shown on file with the Canada Revenue Agency (Burrow cautions small and volunteer-run charities to use their lawyer's address for consistency rather than changing the tax receipts with each new treasurer);
  • the charity's registration number (technically its "Business Number" or "BN");
  • the serial number of the receipt (and those numbers must be sequential);
  • the place or locality where the receipt was issued;
  • the day or year the donation was received;
  • the issue date of receipt if different from the day of donation;
  • the full name and address of the donor;
  • the value and description of any advantage to the donor;
  • the eligible amount of the gift (There must be a statement or a checked box if the advantage is zero. Burrows says that crucial point is often over looked);
  • the signature of an individual authorized by the charity to acknowledge donations (Have a board motion authorizing the signer, says Burrows. Signatures need not be manual; stamps are fine, and so are pre-printed receipts provided they're tightly controlled.);
  • the name and website address of the Canada Revenue Agency (www.cra-arc.gc.ca/charities)
Non-cash gifts

If someone gives you securities, an automobile or a piece of art, for example, you must include extra information on the receipt. CRA will want to see the following:
  • the day on which the donation was received (not the day you sold it);
  • a brief description of the property or securities;
  • the name and address of the appraiser, if used (required if the value of the gift exceeds $1,000);
  • for public securities, the market price per unit on the day the shares are received (most charities use the closing price); or
  • the deemed or appraised fair market value of the property on the day it was received.
When you can't give a receipt

It doesn't feel fair to most people, but professional services do not qualify as gifts. A professional who provides services pro bono and wants a gift receipt should first invoice the charity. When the charity pays the invoice, the professional may contribute an equivalent cash amount to the charity and receive a tax receipt.

Don't ever issue a receipt on behalf of another organization or charity, even if you're working in partnership. Nor can you issue a receipt in a name other than the name of the true donor; for example, by substituting the company owner's individual name when the cheque is drawn on the company bank account.

Registered charities, including foundations, can't use tax receipts because they don't pay taxes. Often when a foundation asks for a "receipt," it really wants a formal acknowledgement that its gift has arrived. Create a signed receipt form that confirms that gift without being part of your income tax receipt series.

Finally, where the advantage to the donor is greater than 80% of the contributed amount, you may not issue a tax receipt.

* Being Good@Doing Good, held in Toronto in February, was organized by Capacity Builders and the Charity Law Information Program.

More information on correct receipting procedures is available at http://www.cra-arc.gc.ca/chrts-gvng/chrts/chcklsts/rcpts-eng.html

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