On this webpage, receipt refers to an official donation receipt.
Cause-related marketing is a fundraising activity where a registered charity (or other qualified donee) works with a for-profit partner to promote the sale of the for-profit partner’s items or services on the basis that part of the revenues will go to the registered charity.
The benefit the for-profit partner receives from this type of arrangement is considered an advantage. For the charity to issue a receipt for a donation made as a result of cause-related marketing, it must be able to calculate the value of any advantage the donor received. The value of the advantage is generally subtracted from the amount of the donation to calculate the eligible amount of the gift for the receipt. See Other factors to keep in mind for some exceptions.
A major retail company agrees to donate a percentage of its sales to a charity. The retail company and the charity promote the arrangement on their websites. The charity receives $20,000 in the first year of the arrangement. The retail company increases its sales and its reputation is improved.
Q. Can the charity issue a receipt to the retail company for its donation?
A. Unlikely. Although the amount received by the charity is clear, the amount of the retail company’s advantage is not. The retail company’s reputation is being improved and its sales have increased, but it is unclear how much is because of the arrangement with the charity. The charity must be able to calculate the value of all advantages before it can issue a receipt to the retail company for the eligible amount of the gift. When the total value of all advantages cannot be calculated, the charity cannot issue a receipt.
In this case, however, the retail company may be able to claim the donation as an advertising expense.
Intention to make a gift threshold
If an advantage is more than 80% of the amount gifted to the charity, the Canada Revenue Agency generally considers that there is no true intention to make a gift. Therefore, the charity cannot issue a receipt.
The de minimis rule
Some advantages are too minimal to affect the value of a gift. If the value of all advantages is not more than $75 or 10% of the amount gifted to the charity, whichever is less, the charity does not need to subtract these amounts from the amount of the gift when issuing a receipt.
If the charity cannot issue a receipt, the for-profit partner may want to get professional advice to see if it can claim the expenses from the cause-related marketing arrangement as an advertising expense.
For more information, go to Split receipting.
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