Auctions: when can you issue donation receipts?
The scenario in this segment will help you understand the rules for issuing donation receipts at auctions.
Let’s start with the scenario, a dinner event:
Your registered charity is holding a silent auction as a fundraiser. One of the items up for auction is a five‑course dinner for 10 people, donated by JP, a hobby chef. He intends to prepare and serve this dinner in his home. JP asks your charity for an official donation receipt for the dinner he is donating based on his time to shop for and prepare the meal, his culinary skills, and the cost of the dinner ingredients.
Q1: Can your charity issue JP an official donation receipt for this dinner?
A1: No. You cannot issue JP an official donation receipt since it is not possible to determine the fair market value of his time, skill and effort. It might be possible if JP were a caterer or a professional chef for which he received taxable income, but since he is a hobby chef, it is not possible to determine the fair market value as there is no market for such a hobby.
Q2: Can you issue an official donation receipt for the cost of the ingredients used for the dinner?
A2: Yes, the fair market value of the ingredients used in the dinner is viewed as property and property can be gifted to your charity.
It is important to note that the official donation receipt can only be issued after the dinner has taken place because there is no transfer of property until JP completes his obligation. Until then, JP’s gift to the charity is just a promise.
Q3: Can your charity issue JP an official donation receipt for the value of the winning bid after the auction has taken place?
A3: No. A winning bid at an auction can never be used to determine the fair market value of an item. You need to determine the fair market value and display it before the auction begins.
JP’s donation of a five-course dinner is only one example involving gifts of service at auctions.
For example, many individuals donate auction items such as homemade preserves or home-baked goods like bread and pies. These are also the result of time, skill and effort.
Unless the donor can demonstrate that they sell these items on the open market and can show proof of the sale prices, the fair market value cannot be determined and official donation receipts cannot be issued.
When a donor is a hobbyist and donates to a charity items he or she made personally, the donor is generally not eligible for an official donation receipt unless he or she is currently in the business of selling similar items in an open and unrestricted market.
If there is no such current business, only the fair market value of the materials used to make the item can be reimbursed or receipted.
(The Charities and giving website address appears on the screen: cra.gc.ca/charities)
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