Anytime a donor receives an advantage from the charity, the charity needs to determine the fair market value of the advantage and except in certain circumstances that fair market value needs to be deducted from the eligible amount of the gift. This is called split receipting. We all know that when you pay $100 for a gala dinner that the charity will not be issuing you a receipt for $100. The charity will value the dinner, door prizes etc and subtract that from the amount of your receipt. It does not matter if everything was donated to the charity - they still need to subtract the amount. Here is a CRA note on split receipting.
Split receipting is the method used for calculating the eligible amount of a gift for receipting purposes when the donor has received an advantage (consideration) in return for his or her donation.
To determine the eligible amount for receipting purposes, the value of the advantage must be subtracted from the value of the gift.
Criteria for split receipting:
• Where a donor receives an advantage in exchange for a gift, the registered charity must be able to accurately determine the fair market value of that advantage.
• The gift, minus the advantage, must still constitute a voluntary transfer of property and meet the intention to make a gift threshold.
What is the intention to make a gift threshold?
In cases where the value of an advantage received for a gift is more than 80% of the value of the gift itself, it is generally considered that there is no true intention to make a gift. Therefore, registered charities cannot issue a receipt where the value of the advantage returned to the donor is more than 80% of the fair market value of the gift.
In rare circumstances, when the intention to make a gift threshold has not been met, there may still have been a clear intention to make a gift. In these cases, the donor must establish to the satisfaction of the CRA that there was an intention to make a gift.
Understanding the de minimis rule:
Certain advantages are of nominal value, and are considered too minimal to affect the value of a gift.
In applying the de minimis rule, advantages that have a combined value that does not exceed the lesser of $75 or 10% of the value of the gift are considered too minimal to affect the amount of the gift.
These advantages do not need to be deducted from the value of gifts when issuing receipts.
The de minimis rule does not apply to cash or near cash equivalents.
• Receipting for fundraising events
• What is a gift?
• Income Tax - Technical News No. 26
Do you require legal advice with respect to Canadian or Ontario non-profits or charities?
Mark Blumberg is a partner at the law firm of Blumberg Segal LLP in Toronto and works almost exclusively in the areas of non-profit and charity law.