Introduction; What is a gift?; Receiptable and non-receiptable transactions - Segment 1
Welcome to the Canada Revenue Agency's Gifting and Receipting webcast. This webcast is a recording of a webinar that occurred in February 2010. This session is no longer live, so if you have any questions please call our client service at 1-800-267-2384 and one of our agents would be happy to help you. Thank you very much and we hope you enjoy this webcast.
What is a gift?
Issuing donation receipts is one of the most significant tax privileges that is granted to registered charities, and with that comes some responsibility. By understanding the receipting rules and the proper receipting practices, charities can avoid putting their registered status in jeopardy.
Before writing a receipt, a charity must first establish whether or not a gift has been made. There are 3 conditions that must be met for a gift. The first is that it's voluntary; the second is that it's transferred, and the third is that it's property. What we mean by voluntary is that the item was given of free will so a repayment of stolen money, for example, would not be considered voluntary. Transferred - that the ownership or the right is actually transferred from the donor to the charity. Lastly, that it's property. That it is tangible either cash or a gift in kind.
Types of Gifts that Generally Qualify for Donation Receipts Some examples on this slide are the types of gifts that generally qualify for a receipt: cash and gifts in kind.
Cash is fairly self explanatory, gifts in kind you'll see from the slide we have some examples here. Could be a bequest, stocks, bonds, personal property (provided you can establish the fair market value), life insurance policies, Canadian cultural property or ecological land.
I want to touch on 2 examples here; the gifts of life insurance policies do raise a number of questions so I thought in this session we would explain some of the receipting circumstances where you can issue a receipt. So there are generally 2 situations with life insurance policies.
The first is the donor makes the charity a beneficiary but retains ownership of the policy itself and then continues to pay the premiums. In that case, a receipt can only be issued following the donor's death. So, once that has happened the charity can issue an official receipt for the proceeds of the policy that have been transferred at that time. Alternatively, the donor can absolutely assign the life insurance policy to a charity and then make the charity the beneficiary. In this case, the charity can issue a receipt at the time of assignment for the fair market value (FMV). An actuarial evaluation would be the appropriate tool to use to establish the FMV, and another difference is that the donor can actually receive a receipt for the premiums paid. So all the premiums that they pay throughout time, they can receive a receipt for that as well. Some policies that I would invite you to look at if you have more questions about life insurance policies: CSP L02, Newsletter 27, and our Interpretation Bulletin IT244R3.
The second item on this list that may be raising some questions is the Canadian cultural property and the ecological gifts. Canadian cultural property is certified by the Canadian Cultural Property Expert Review Board and ecological land is ecologically sensitive land that the Minister of Environment has certified as such. There are certain tax treatments for these types of gifts so if you have questions about those I would recommend you read our Newsletter 22, 24 or the donors pamphlet on gifts P113, that should give you some more information on those two.
Examples of Transactions for Which No Donation Receipt Can Be Issued
Some examples of donations that cannot be receipted: Court ordered gifts, so this has happened on occasion where an individual has been ordered by a court to pay a sum of money to a registered charity, in that case the gift is not considered voluntary and therefore no receipt can be issued.
Payment of admission fees or lottery tickets also do not qualify, if you cannot establish the FMV of an item then no receipt can be issued, gifts where there's been direction from the donor that it must benefit a specific person or family - what I don't mean here is if an individual gives a gift to a charity and they've directed it to a specific program. So if you're giving money and you've said I would like this to be spent on a certain piece of equipment, a literacy program that is perfectly acceptable. What we mean here is that if a gift has been made and the donor says this must go towards my son, or my daughter, or a particular family, the Smith family for example, that would not be acceptable for a receipt.
Pledges also do not qualify for a receipt because they are a promise of a donation, so until that pledge has actually turned into a gift no receipt can be issued.
Lastly we have services. Services do not qualify for a receipt because they are not property. We are going to go into a couple more slides about services because they certainly do cause a lot of questions.
Contribution of Services We're going to run through a quick example of the contribution of services. So in this case we have a fairly common transaction where a charity has hired a service provider, in this case a landscaping company, and that landscaping company comes and maintains the grounds 20 times a year at $150 a session so at the end of the year the charity actually owes $3000 to the service provider. The service provider says "don't pay me; just give me a receipt for $3000". This would not be a receipting situation that would be acceptable; no property has in fact changed hands so the charity could not issue a receipt.
What the charity can do in a situation where they would like to provide receipts to service providers is they can enter into a cheque exchange. So the charity would pay for the service, the service provider would invoice the charity, the charity would pay for the service, then that service provider would donate the money back and the charity would write a receipt for the monetary donation.
In this case the charity should make sure that they keep a copy of the invoice and they keep a copy of the cheques and that will ensure that they're receipting the gift properly and also provide an audit trail should they need one. The donor would then subsequently claim the income that they made providing this service either on their T1 or their T2; their personal income tax or their corporate income tax depending on who the service provider was.
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