What is sponsorship?
Sponsorship occurs when a business makes a donation toward the cost of a charity’s activity or event and, in return, the charity advertises or promotes the business’s brand, products or services.
Can a registered charity acknowledge a business for its donation and still issue that business an official donation receipt?
If a business receives the same level of recognition as all other donors, with no special treatment, and the recognition is minimal (for example, a simple acknowledgment), the charity can issue the business a receipt for the full amount of the donation.
If a business receives special recognition for its donation, or if it receives more than minimal recognition (for example, banners or advertising of products), this is considered sponsorship. Sponsorship is an advantage and its fair market value is generally deducted from the amount of the donation for receipting purposes. It is difficult, if not impossible, to calculate the value for sponsorship. When the value cannot be calculated, the charity cannot issue the business an official donation receipt. However, the business may be able to include the sponsorship costs in its advertising expenses, but only if this sponsorship is considered reasonable and was given with the intent of generating income.
Factors to consider in sponsorship situations
Sponsorship situations are unique and should be looked at individually. Here are some of the factors to consider:
- Source: Is the donation from an individual or a business?
Generally, individuals will not benefit financially from name recognition. If the recognition does constitute a benefit, it will have little value. There may be exceptions. For example, if the donor’s name is closely associated with a business, using the donor’s name may provide a valuable benefit to the business.
- Purpose: Is the purpose of the donation to get recognition?
- Contracting: Is there a written or unwritten understanding that shows the donor expects and will receive a benefit in return for the donation?
- Naming: How is the donor being acknowledged (for example, newsletters, plaques, cards)? If the acknowledgement is in a newsletter or similar publication, is the publication available only to members of the charity or is it available to the general public?
- Valuation: Can the value of the recognition (for example, promotion, advertising, sponsorship) be calculated?
Other factors to keep in mind
Under the split-receipting rules, the value of all advantages must be calculated in order to issue a receipt for the eligible amount of a gift.
If the value of all advantages cannot be calculated, the charity cannot issue the donor a receipt.
If the value of all advantages is more than 80% of the value of the gift, the Canada Revenue Agency generally considers that there is no true intention to make a gift. Therefore the charity cannot issue the donor a receipt.
Dan Green’s Used Cars Ltd. gives a corporate donation to the local theatre company (a registered charity) to help offset production costs. The theatre company has a seasonal brochure where all donors are thanked for their support. They include “Dan Green’s Used Cars Ltd.” in the alphabetical list of donors. Neither Mr. Dan Green (the owner) nor the dealership will receive any other benefits.
Q. Can the theatre company issue an official donation receipt to Dan Green’s Used Cars Ltd. for its donation?
A. Yes. The car dealership is simply being recognized along with all the other donors without any special recognition. Since the dealership is not being distinguished from the other donors, the theatre company can issue an official donation receipt to Dan Green’s Used Cars Ltd. for its donation.
Sam Reed’s Hardware Store agrees to be the major sponsor for ABC charity’s walk-a-thon fundraiser. In return for a $5,000 donation, the store’s brand will be identified as the major sponsor on all advertising, banners, and the participants’ T-shirts.
Q. Can ABC charity issue an official donation receipt to Sam Reed’s Hardware Store for its donation?
A. Unlikely. The hardware store is getting advertising and promotional benefits for its sponsorship. The charity must be able to calculate the value of these advantages in order to issue a receipt. When the value is unknown, the charity cannot determine the eligible amount of the gift. In this case, the hardware store may choose to claim the donation as an advertising expense.
Jill Roy is an employee at a local bakery. When she hears about ABC charity’s walk-a-thon fundraiser, she agrees to donate $250 to sponsor a water station. At the water station, there will be a sign saying, “Thank you Jill Roy for sponsoring this water station.”
Q. Can ABC charity issue an official donation receipt to Jill Roy for her $250 donation?
A. Yes. Although Jill will receive some social recognition for her gift, she will receive no material advantage and neither will her employer, who is not mentioned on the sign. Therefore, ABC charity can issue an official donation receipt to Jill for her donation.
Sara Brown’s Nail Salon is the only nail salon in town and is advertised heavily in social media. Miss Sara Brown donates $300 to sponsor a water station at ABC charity’s walk-a-thon. She gives the $300 donation out of her personal bank account, and the sign at the water station says, “Thank you Sara Brown for sponsoring this water station.”
Q. Can ABC charity issue an official donation receipt to Sara Brown for her $300 donation?
A. Unlikely. Sara Brown’s name is very closely associated with her well-recognized nail salon. Her business stands to benefit from the publicity, even though she sponsored the water station through her own income. The charity must be able to calculate the value of this advantage to issue a receipt. When the value is unknown, the charity cannot determine the eligible amount of the gift.
Income Tax Act, R.S.C. 1985 (5th supp.) c. 1, ss. 248(31) and (32)
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