Under Canadian tax rules, registered charities may issue tax receipts to their donors. This is a great fundraising advantage for charities, since the receipts allow donors to receive generous tax credits that can reach upwards of 50 percent of the donation, depending on the province of residence. However, there are strict rules governing the issuance of receipts that charities must follow.
What Is a Donation?
The charity must consider whether a donation was made, and if so, for how much. This may seem like a straightforward issue and, in cases where a simple donation of money is made, it usually is.
The issue is murkier when it comes to the donation of goods, services or other types of arrangements that may resemble donations but are not. Canadian courts have defined a donation as being a a voluntary transfer of property without anything being given in return.
The fact that it must be a transfer of property excludes gifts of services. A volunteer who donates time to help a registered charity cannot receive a tax receipt for the value of that time.
For other gifts in kind, it is the charity’s obligation to determine the fair market value of the donation, and it may issue a receipt accordingly. Fair market value is usually defined as the price that an interested buyer would be willing to pay to an interested seller in a free market where the parties deal at arm’s length. The Canada Revenue Agency indicates that for gifts with a value above $1,000, the charity should get an independent valuation from an independent appraiser.
If the donor does receive an advantage in exchange for the donation, the charity may still issue a receipt for the difference in value if the advantage is worth less than 80 percent of the donation.
What Information Must the Charity Include on the Receipt?
When a registered charity issues a tax receipt, it must do so on a document that indicates clearly its name, address and official CRA registration number. The receipt must almost be dated, numbered and identifiable. For example, a charity’s 2016 receipts could be numbered 2016-001, 2016-002, 2016-003 and so on.
For cash gifts, the receipt must also clearly show the full name and address of the donor and the amount of the gift. It must be signed by a person authorized to do so by the charity. If the donor received an advantage in return for the gift, it must be described on the receipt. The receipt must indicate the name and website address of the CRA.
In addition to the above information, receipts that charities issue for gifts in kind must also include the date when the gift was received, a brief description of the gift received by the charity and, if applicable, the name and address of the appraiser that was used to obtain a valuation of the gift.