Donating and Sponsoring: Two Completely Different Generous Acts!
Espace idées • January, 25th 2018
Generally speaking, if you as an individual decide to make a personal donation to a non-profit organization, you are considered a donor. On the other hand, if you own or run a business and want to support a cause, it's important to determine whether your contribution will be in the form of a donation or a sponsorship.
First, what’s considered a donation?
Here are some things to evaluate in order to determine if a donation is considered a gift for tax purposes and if a receipt can be issued by the registered charity:
What about the purchase of a ticket for a fundraising event? Is this considered a gift?
Here’s an example. Martine buys a ticket for the hospital foundation's fundraising dinner at a cost of 0. She can receive an official receipt, but only when all material benefits received have been subtracted (the material benefit being the value of what she will receive during the event). In this example, the value of the food served to her during the evening (a value of $ 50). She will therefore receive a tax receipt of .
What about a donation of services? Can we issue a receipt for that?
A charity cannot issue a receipt for the donation of services. However, there is a small exception to this rule. If an organization pays a service provider in exchange for services rendered and the service provider then decides to donate that amount to the organization, the service provider can then receive an official tax receipt.
To learn about other types of transactions that are eligible for donations, visit the Canada Revenue Agency website.
And sponsorships?
A sponsorship is a contribution, usually made by a business, to fund a particular project as a whole, or in part (for example, an event or a program). In exchange, the business will receive advertising or promotion of its brand, products or services.
The organization will offer the business visibility, which is determined in advance in a sponsorship agreement (for example: logo in an advertisement tied to the activity, on a poster, on a website, on a promotional object , etc.). It is difficult, if not impossible, to calculate the value of a sponsorship. When the value cannot be calculated, the charity cannot issue an official receipt.
The business can declare its sponsorship as an expense.
Let's try to unravel this!
- The "La Baguette" bakery wishes to support an organization in the region. The business would like to increase its visibility by associating itself with a cause, because they have only existed for 4 months. The business agrees to be the Silver Sponsor of the Annual Ball Against Violence. In exchange for[,000, the organization will display the bakery’s logo on all event ads.
In this case, the business will receive visibility (of which it is impossible to calculate the exact value), in exchange for its contribution, thereby making this a sponsorship. The organization cannot issue a receipt, but can still send an invoice to the company so that it can add the sponsorship to its expenses.
- Sylvie Tremblay works for a children's clothing store. She hears about a challenge-type activity for the charity Together Against Violence. She decides to donate 0 for coffee to be offered to all challenge participants. The organization will put up a poster at the coffee station that reads: Thank you to Sylvie Tremblay for today’s coffee!
In this case, can the organization give Ms. Tremblay an official receipt for her 0 donation? Yes. Although Ms. Tremblay received some acknowledgement, she received no visibility, promotion or personal gain, and neither did her store.
- Francis is enrolled in a fundraising event for a local foundation. He must raise 0 in donations to participate. To do this, he goes door-to-door and solicits several companies and individuals that give him a donation to encourage his participation.
Who will be entitled to an official tax receipt? Because no visibility was promised in exchange for contributions, the Foundation may issue a receipt to all businesses and individuals who made a donation in the minimum amount established by the Foundation (this is established by each charity).
You’ll find more examples on the Canada Revenue Agency website.
We hope this article will motivate you to donate to an organization or sponsor an activity in your community! 😊
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