What is an official donation receipt?
What we call a donation receipt / charity receipt is a written, official proof of a donation made to a registered charity.
Registered charities can issue receipts, including official donation receipts.
These receipts are used to reduce the income tax of the person or the business that makes a donation. Because of this tax advantage, the receipt must contain several pieces of information. This aspect is addressed in the question "What information should be found on receipts? ".
Can official receipts be issued for any type of donation?
No. We can only issue official receipts if it is a donation within the meaning of the law.
Which means that a donation must be:
- Voluntary. The donor can't be forced to do it.
- Real. The donation must be transferred by the donor to the charity (the promise to make a donation is not considered a donation until it has been made).
- A good. It can be a sum of money or a donation in kind (for example, shares of a company, computers, equipment, work, land, building, etc.)
A service (mowing grass, for example) is not good. As a result, no receipt can be issued for a service donation.
However, if the charity pays for the service and the person who rendered the service voluntarily returns their payment as a donation, the charity may issue a receipt.
In addition, some goods are generally not considered donations, such as:
- Gift certificates, coupons, and event tickets issued by the donor himself. For example, Bookstore X can't get a receipt if it donates a gift certificate from Bookstore X to a charity;
- Loans of property or rental of buildings;
- Sponsorships and other donations paid in exchange for an advertisement;
- Payments made to buy a lottery ticket or participate in a game of chance to win a prize;
- The entrance fee for an event (eg a concert);
- Membership fees. However, if the donor only receives services that have a low dollar value in exchange for membership fees (for example, a vote or the charity's annual reports), then a receipt can be issued.
Is a receipt always issued for the full amount of the donation?
Not always. If the donor receives a benefit in exchange for a donation, the value of the benefit must be deducted from the amount recorded on the official donation receipt. The Canada Revenue Agency uses the term donations received for part of the value to refer to this rule.
What is a "benefit"?
What a donor can receive as a gift, thank you, good, or service in exchange for their donation. Here are some examples of benefits:
- A meal during a benefit gala;
- Entrance fees at a golf tournament;
- Show tickets;
- Books, compact discs, coffee mugs, sweaters;
- A daycare service;
- A conference.
Note that even if the benefit has been given, it must be deducted from the donation amount.
How is the value of the benefit calculated?
It is based on its fair market value (FMV), which is also used to value in-kind donations. Fair Market Value refers to the highest price that the benefit could earn if it were sold on the market by a knowledgeable seller to an informed buyer.
As with in-kind donations, if a charity can't determine the fair market value of a benefit, it should not issue an official donation receipt. If a charity is unsure of the value of the benefit when organizing a charitable event, it can simply inform its donors that the value will be established later, and deducted from the amount of their donation.
For example, a donor pays $ 100 for a charity dinner. The value of the meal, included in the ticket price, is $ 20. The official donation receipt should then be made for an amount of $ 80. Or at another event, a donor pays $ 75 to hear a renowned speaker and a musician. Together, these benefits represent a $ 1,000 value in the market. There are 200 participants. Therefore, the value of the benefit should be divided by the number of participants ($ 1000/200 participants). The individual value of the benefit is $ 5. To determine the amount of the receipt, subtract the benefit amount from the donation amount ($ 75- $ 5). The receipt should be issued for $ 70.
Maximum threshold of benefit
This is a limit on the value of the benefit that a donor can receive in exchange for a donation in order to obtain a receipt. The benefit can not represent more than 80% of the donation amount. If it exceeds this limit, no receipt can be given to the donor.
For example, a donor donates $ 100 and gets tickets for a dinner show worth $ 85. Since the benefit exceeds 80% of the donation amount of $ 100 ($ 80), no official donation receipt can be given to this donor.
Minimum threshold of benefit
If the value of the benefit represents less than 10% of the donation amount and does not exceed $ 75, it will not be necessary to deduct that value from the donation amount to prepare the official receipt.
For example, a donor donates $ 200. The charity gives her a $ 17 gift bag. Since the value of the bag does not exceed 10% of the donation (ie $ 20) or $ 75, the value of this benefit does not need to be deducted from the donation amount. The receipt may indicate a donation of $ 200.
There is one exception to the minimum threshold rule of benefit. If the benefit is in cash or cash-type (eg gift certificates, coupons, vouchers, etc.), these must be deducted from the amount of the donation on the receipt.
At what time of the year should a receipt be issued?
There is no rule on when exactly an official donation receipt should be given. However, for a donor to use it to reduce their taxes, they must receive it before February 28th the following the year they made their donation.
For example, if a donation is made on October 1st, 2020, the receipt should be issued no later than February 28th, 2021. In this way, the donor will be able to use this receipt on their 2020 taxes.
Can one receipt be given for all donations made by the same person?
For cash donations, a registered charity can either issue a receipt for each donation made in the year, or a single receipt for all donations made by the same person.
However, for "in-kind donations", a separate receipt must be given for each donation.
Can we make a receipt in the name of someone other than the donor?
No. The registered charity must make the official donation receipt on behalf of the actual donor, that is, the individual or organization that made the donation.
If a donation is made by check from a joint account and the names of both persons appear on the check, the charity can issue the receipt on behalf of one of these individuals.
If the charity receives a check from an organization (for example, a business) and the organization requests an official donation receipt on behalf of an individual, the charity must refuse, unless the charity organization shows him that the individual is indeed the true donor.
The registered charity must ensure that the name written on the receipt is the name of the actual donor. If the charity can't determine the names, it should not issue a receipt.
What information should be found on receipts?
- The statement that the document is an official donation receipt used for income tax purposes;
- The name and address of the charity (must be the same as those registered with the Canada Revenue Agency);
- The registration number of the charity;
- The serial number of the receipt;
- The location where the receipt was given (for example, Montreal);
- The date the donation was received;
- The date the receipt was issued if it is different from the date the donation was received;
- The full name and address of the donor. In the case of an individual, the name must include his first name and initials;
- The total amount of the donation;
- The value and description of any benefit received by the donor;
- If a benefit has been received by the donor, the total amount of the donation minus the value of the benefit. This amount is also known as the eligible amount or the amount that the donor can claim for income tax purposes;
- The signature of the person authorized by the charity to acknowledge donations. (Under certain conditions, the charity may use a reproduction (copy) of the signature.) For more information, see Computer-generated Receipts on the Canada Revenue Agency website.)
- The name and address of the Canada Revenue Agency website.
Can a charity use computer-generated receipts and send them by e-mail?
Computer generated receipts
These can be used under certain conditions:
- The computer system used to store receipts must be password protected and must restrict access to donor registries and their amendments.
- Donor records must be kept in a form that protects them from changes, such as printed copies or burned CD-ROMs.
- Hard copies of issued receipts must be available at the request of the Canada Revenue Agency.
Receipts sent by email
They are allowed, but the Canada Revenue Agency recommends the following precautions:
- Submit and keep receipts in a format that protects them from changes (for example, PDF).
- Send receipts from secure computers (firewall, antivirus, etc.) which should be updated regularly.
- Encode and code receipts with an electronic signature.
- Limit the use of the electronic signature to a person authorized by the registered charity.