Tax Receipts

We held a fundraising auction. Can I issue charitable donation receipts for the donated auction items?

It depends what the items were.

You can issue tax receipts for gifts of property. Thus, the donors of tangible auction items – artwork, an iPad, a bicycle, anything you can touch – can receive a tax receipt for their gift.

You cannot issue tax receipts for gifts of services (e.g. a tax consultation, a spa treatment) or for promises of services (e.g. a gift certificate, a voucher for hotel accommodation).

One important point of clarification: the company that issues its gift certificate or the hotel that issues the accommodation voucher has given you only a promise; they have not transferred property. However, if someone other than the issuer purchases a gift certificate or voucher (i.e. pays for it with cash) and then donates it to you, they have acquired property and made a gift of that property – and in that circumstance, a tax receipt can be issued.

Here’s the citation from the CRA website.

We held a fundraising auction. Some patrons paid more than the value of the items. Can I issue charitable donation receipts?

Only under specific circumstances.

Charitable donation receipts can be issued only for gifts. They cannot be issued for purchases of goods or services. Your auction patrons have bought something; that’s different from an outright gift. (Here’s the citation from the CRA website).

In the case where an auction patron has paid more than the fair market value of the item, a charitable donation receipt can be issued for the portion of the auction price in excess of fair market value if these three conditions are fulfilled:

  1. It must be possible to determine the item’s fair market value
  2. The value must be posted before the start of the auction
  3. The fair market value cannot exceed 80% of the purchase price

Here are two references to CRA articles that discuss receipting:

To restate point #3 in a different but equivalent way, the buyer must pay 25% (or more) over the fair market value of the item.

Let’s say one of your auction items is a camera with a fair market value of $400. In order to qualify for a charitable donation receipt, the successful bidder must pay at least $500. If you do the math, you’ll find the $400 fair market value is 80% of $500. A $500 successful bid is 25% over the $400 FMV.

If the successful bidder paid you $500 for the camera, they would be entitled to a charitable donation receipt for $100, the amount in excess of fair market value.

What if the bidder paid more than $400 but not quite as much as $500? Well, if they fail to meet the test, then they’ve just bought themselves a very expensive camera! In the CRA’s eyes, that 80% rule is the threshold for establishing that a donation has been made.

My charity has received a gift of professional services. Can I issue a charitable donation receipt?

No.

Those services might be valuable. Charities benefit from many types of “pro bono” assistance – accounting, legal, grant writing, performing, design… But the Canada Revenue Agency’s rules are clear: charitable donation receipts can be issued only for gifts of property, not for gifts of services.

The fact that there might be a clearly understood and publicized fee (i.e. the fair market value is unambiguous) does not change this ruling.

There is something you can do, though: you can pay your supporter for their services, and they can donate the money back to you. These transactions create a gift of property, which is eligible for a charitable donation receipt.

It’s not good enough to exchange an invoice marked “paid.” Your supporter must invoice you for the services (and you must retain this invoice as part of your accounting records). You must actually pay the service provider, and they must give you the donation of money (and your banking records must show these transactions).

This process requires the donor to receive payment, which must be declared by them as taxable income. The charitable donation receipt confers a tax credit against this income.

The whole process is often referred to as a “cheque exchange.”

Here are a couple of citations from the CRA website:

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We received a gift from a foundation and they want a tax receipt. Should I send one?

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No.

In Canada, the function of a charitable donation receipt is to confer an income tax credit on the donor. This credit reduces the amount of tax payable. Foundations are registered charities and, as such, are exempt from paying income tax. They cannot use the tax credit for any purpose.

Here’s the Canada Revenue Agency’s word on the topic.

As the CRA suggests, you can provide a thank-you letter and/or an ordinary receipt (not an official receipt for income tax purposes). Also, your foundation supporter will need your charitable registration number in order to complete their own T3010 Charities Return reporting.