Gifting and receipting 101
NARRATOR (voice over): This presentation will be an overview of gifting and receipting rules for registered charities and all other qualified donees.
What do we mean by the term « qualified donee? »
Qualified donees are all organizations legally eligible to issue donation receipts according to the Income Tax Act. Registered charities are a type of qualified donee. Other types of qualified donees that are registered, they are listed on our website under “Other organizations that can issue donation receipts’’
Within this presentation, you will notice various examples of gifting and receipting, all of which apply to registered charities and other qualified donees.
Here’s an outline of what we’re going to cover. We’ll explain:
- What does and does not qualify as a gift;
- The conditions that need to be fulfilled in order to issue a donation receipt; and
- How to determine the amount to report on a donation receipt.
Let’s get started.
Let’s start by talking about eligible donations, which we often refer to as “gifts”. There are two categories of gifts: cash gifts and gifts in kind.
Cash gifts are items like cash, cheques, credit cards and web transfers.
Gifts in kind, which we sometimes refer to as “non-cash gifts”, include goods like school and office supplies, land, listed securities, and copyrights.
Not all transactions are eligible for a donation receipt.
Examples of transactions not considered donations include:
- paying an admission fee to some events or programs;
- buying a lottery ticket or any other chance to win a prize, even though the lottery proceeds may benefit one or more charities;
- contributing services, like providing free legal or accounting services; and finally
- promising or pledging to make a donation. Promises and pledges are not eligible because a transfer of property has not occurred.
Eric is an electrician and he is hired to repair some wiring issues for a charity. He gives the charity a bill for two hours of his services and suggests that they give him a donation receipt instead of payment. Can the charity provide a donation receipt to Eric instead of payment?
No, the charity cannot give Eric a donation receipt, because he is providing a service of time and talent. There has been no transfer of property from Eric to the charity. We will talk about this a little more in the next section on issuing donation receipts.
In order to be able to issue a donation receipt, four conditions need to be met.
The first condition is that there needs to be a transfer of property. This means that a cash gift or gift in kind must actually be transferred from the donor to the qualified donee.
The second condition is that the gift is made voluntarily. If a donation is made as part of a contract or some other obligation, like a court order, then it is not eligible for a donation receipt.
The third condition is that you must be able to determine the fair market value of the gift. Let us take a moment to talk about fair market value.
The fair market value is usually the highest price, expressed in dollars that you can get for your property in an open and unrestricted market, between a willing buyer and, a willing seller who are acting independently of each other and who are both knowledgeable and informed.
Here’s an example:
If Christine buys a new laptop and donates it to a municipality, then the fair market value of the laptop will be the total amount she paid for it before taxes. If Christine paid $400 plus taxes for the laptop, the donation receipt will be for $400.
The fourth and final condition for a donation receipt to be issued is that the benefit to the donor, also known as the advantage, cannot be worth more than 80% of the value of the donation.
The CRA defines advantage as the total value at the time the gift is made, of all benefits that a person is entitled to receive in relation to the gift.
Here’s an example:
Christine donates cash to a qualified donee and in return, the recipient gives her a small token of appreciation, like a t-shirt. The t-shirt is an advantage.
But if the value of the advantage is too high, which means 80% or more of the value of the donation, then we consider that there is no true intention to make a gift; and a donation receipt cannot be issued.
If the advantage is worth less than 80% of the donation and all the other conditions are met, then a donation receipt can be issued, but the advantage must be deducted from the donation receipt.
If the combined value of the advantage does not exceed $75 or 10% of the donation, whichever is less, then it does not have to be deducted from the donation receipt. This is referred to as the de minimis rule.
Keep in mind that an advantage that is the purpose of the fundraising event, such as the meal at a gala dinner, is never included in the de minimis rule calculation and is always subtracted from the donation receipt.
Let us go through an example using the de minimis rule:
Let’s say a municipal or public body receives a $200 cash gift from a donor and in return, they provide the donor with a baseball cap worth $20. Since the $20 baseball cap is only worth 10% of the donation and is under $75, the de minimis rule applies, and the charity can issue a donation receipt for the full amount of the gift.
A registered Canadian amateur athletic association receives a $1,000 cash gift from a donor and in return, they provide the donor with a concert ticket worth $100. Does the de minimis rule apply to this donation? The answer is no. For this donation, the de minimis rule does not apply because the advantage is over $75. The RCAAA can still issue a donation receipt, but has to subtract the value of the advantage from the value of the donation.
This kind of receipt is referred to as a split receipt.
It is important to remember that all of this information has to appear on the donation receipt: the total amount received by the charity, the total value of the advantage as well a description, and the eligible amount of the donation. Once again, this particular type of donation receipt is called a split receipt.
Here is an easy reference tool that can help when issuing donation receipts:
If the advantage is worth $75 on a $1,000 donation, a donation receipt for the full amount can be issued because the value of the advantage is worth less than 10% of the gift and less than or equal to $75 (this means it meets the de minimis threshold.)
If the advantage is worth $99 on a $1,000 donation, a split receipt can be issued because the total value of the advantage is less than 10% but greater than $75. The eligible amount on the donation receipt would be $901, which includes the $1,000 donation minus the $99 value of advantage.
And lastly, if the value of the advantage is $900 on a $1,000 donation, no donation receipts can be issued because the advantage exceed 80% of the donation, which means they are over the intention to make a gift threshold.
Jane purchases a $250 ticket for an annual gala dinner. The fair market value of the meal is $50 and when she arrives for the dinner, the host provides her with a coffee mug valued at $10, to say “thank you” for attending. What amount should be indicated on the donation receipt?
The donation receipt should be for $200.
The $50 meal must be deducted from the receipt because it is considered the purpose of the event and we have learned that the purpose of the event is always a donor advantage.
The $10 coffee mug Jane received is a “thank-you” gift and not the main reason Jane attended the event; therefore, to decide whether the coffee mug is a donor advantage, the de minimis rule is applied. The $10 coffee mug is less than 10% of the $250 ticket for the gala dinner and under the $75 cap, therefore the mug is not an advantage to the donor, and its fair market value is not deducted from the donation receipt. So $250 minus $50 dollars for the meal equals $200 for the donation receipt.
To summarize, this presentation covered:
- What does and does not qualify as a gift; where we talked about the two categories of donations, cash gifts and gifts in kind;
- The conditions that need to be fulfilled in order to issue a donation receipt; where we covered the four conditions; and
- How to determine the amount to write on a donation receipt; where we talked about fair market value, advantages and the de minimis rule.
For more information we’ve also prepared a series of shorter segments on specific topics surrounding gifting and receipting.
(The Charities and giving website address appears on the screen: cra.gc.ca/charities)
(Icons appear on the screen with the following words beside each related icons: “What’s New” electronic list, Twitter account: @CanRevAgency and the YouTube Channel CanRevAgency)
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