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Please refer to a previous article by Manning Elliott LLP that discusses the difference between a charity and NPO.
Charity Donation Receipt Requirements
Q1. Who is responsible to determine when a charity donation receipt can be issued and for how much?
A1. The charity - Although a charity is not legally required to issue a charity donation receipt, it usually does so as an incentive to donors. The charity must issue receipts with very specific information. Failure to do so impacts both the donor and the charity. The donor could lose the donation tax credit or deduction, and the charity could be subject to penalties (sometimes exceeding its surplus for the year), loss of privileges to issue donation receipts, or revocation of its charity status.
Q2. Can a charity issue a donation receipt for the use of vacation property provided for its silent auction?
A2. No - A charity donation receipt can only be issued for a gift of property. The right to use property is a property, however the granting of this right is not. Consider having the charity pay for the use of the property, and having that cash re-donated back to the charity for a donation receipt. The donor would have to report rental income on the vacation property but there should be a “win” if he/she is not in the highest tax bracket, as the donation tax credit is available at the highest tax rate (except for the first $200).
Q3. How does split-receipting work?
A3. CRA split-receipting is required when a charity receives a donation but provides an advantage to the donor. The amount on the donation receipt is reduced by the value of the advantage provided to the donor. For example, if a charity gala ticket costs $200 but the value of the meal and entertainment provided is $50, the charity would issue a donation receipt for $150.
There is an exception from split-receipting when the advantage is less than $75 or 10% of the donation, whichever is less. In that case, a receipt can be issued for the full value of the donation, i.e. no reduction is required.
No receipt can be issued if the advantage exceeds 80% of the donation, as the CRA considers the donor to have no real intention of making a gift.
Q4. Can a charity issue donation receipts for cause-related marketing?
A4. Cause-related marketing is a fundraising activity, where a charity works with a for-profit partner to promote the sale of its goods or services and a portion of its revenues are then donated to the charity. For example, a restaurant donates a portion of its patron’s bill to a neighbouring theatre company, upon presentation of a same-date theatre ticket.
The CRA takes the view that split-receipting is not available because it would not be possible to determine the value of the advantage enjoyed by the for-profit partner in the form of improved reputation or increased sales. Although the charity cannot issue a receipt, the for-profit partner may be able to reduce its taxes by claiming the donation as an advertising expense, which provides effectively the same tax result as a deduction for the donation.
Q5. Are there benefits to donating shares to charity?
A5. Yes, for public company shares. The donor can claim a donation tax credit equal to the value of the shares (what it could have sold for, rather than what was paid for the shares). In addition, any accrued gains on the shares will not be taxable. This is a better result than selling the shares and realizing a taxable capital gain, then donating the proceeds to a charity for a donation receipt.
Donations of private company shares are also eligible for the donation tax credit equal to the value of the shares; however, half of any accrued gains would be taxable to the donor. We would recommend professional tax advice if the recipient of the shares is a private foundation, as there are complex CRA tax rules that could affect its registration status.
Q6. Is a donation of real estate taxable?
A6. Yes, if there is an accrued gain, but there is a way to reduce or eliminate this gain.
In general, the donation of real estate is considered a disposition and half of the accrued gains would be taxable. There may be additional income, referred to as recapture, if CCA (capital cost allowance) was claimed on the building portion by the donor in the past. The 2015 Canadian Federal Budget announced that the donation of real estate would be exempt from capital gains tax but this was unfortunately rescinded the following year. The donation tax credit is still available equal to the value of the real estate, which should offset the tax payable on the accrued gains.
The donor has an option to designate a charitable donation amount for taxes, anywhere between the tax cost and the value of the property. This amount is then deemed to be the proceeds of disposition, which reduces or eliminates the capital gain. This option can be beneficial to a non-resident with no other Canadian-source income who is unable to use the donation tax credit, or where the donation exceeds the annual donation limit. The charitable donation receipt would still show the full value of the real estate.
You may also be interested in our article entitled, “Activities that Can Affect Charity and NPO Status.”
Stay tuned for Charity and NPO FAQs - Part 2 in a future issue. Please contact Wendy Seet of the Manning Elliott Tax Team for more information on any of the above.
Wendy Seet, CPA, CA is a Senior Tax Manager at Manning Elliott LLP. For more information pertaining to this topic, please contact the Manning Elliott tax team at 604-714-3600.
The above content is believed to be accurate as of the date of posting. Canadian Tax laws are complex and are subject to frequent changes. Professional tax advice should be sought before implementing any tax planning. Manning Elliott LLP cannot accept any liability for the tax consequences that may result from acting based on the information contained therein.