Donations & Tax Benefits Presented by: Teodor Amariei, CPA, CGA

1. Donations &Tax BenefitsPresented by: Teodor Amariei, CPA, CGA For more information see www.cra-arc.gc.ca/charities

2. What is a GIFT? • For a donation to be considered a gift for tax purposes the following 3 conditions must be met: 1. Voluntary – given of free will 2. Transferred – from a donor to a registered charity 3. Property - cash or gifts in kind For more information see www.cra-arc.gc.ca/charities

3. Types of gifts that generally qualify for donation receipts • Cash gifts (cash/cheques) • Gifts in kind (non-cash gifts): • Personal property for which fair market value (FMV) can be determined (computer, clothes, furniture, artwork, etc.) • Capital property (stocks, bonds, land, building, equipment, etc.) • Bequest (could be cash) • Canadian cultural property (approved by The Canadian Cultural Property Export Review Board) • Life insurance policy • Ecological land For more information see www.cra-arc.gc.ca/charities

4. What do you have to know for issuing a donation receipt • What is the fair market value (FMV) of the property transferred? • Is the gift eligible for a tax receipt? • Has the donor received something in return for the gift? • What is the amount to be receipted? For more information see www.cra-arc.gc.ca/charities

5. 1) What is the Fair Market Value (FMV) • FMV is generally the highest price, expressed in a dollar amount, that the property would bring in an open and unrestricted market between a willing buyer and a willing seller who are both knowledgeable, informed, and prudent, and who are acting independently of each other. • Third party appraisal is recommended if the expected FMV is over a $1,000. • Charity must determine the FMV of any non-cash gifts on the day that it is transferred (e.g. exchange rates, stocks market value etc.) • If the FMV cannot be reasonably determined then an official donation receipt cannot be issued. • Deemed FMV – applies to any property donated within three years of acquisition or acquired through a gifting arrangement (the lesser of actual FMV of the property or donor’s cost to acquire the property). There are some exceptions to this rule. For more information see www.cra-arc.gc.ca/charities

6. 2) Examples of transactions for which no donation receipt can be issued Donation receipt cannot be issued for: • Gifts of services (for example, donated time, labour) • Gift in kind for which the fair market value cannot be determined • Gift with a direction from the donor to give the funds to a specific person or family • A donation for which the FMV of the advantage or consideration provided to the donor exceeds 80% of the value of the donation • Payment of basic admission fees to an event or program • Payment for a lottery ticket or other chance to win a prize • The lease of premises and loans of property • Donations provided in exchange for advertising/sponsorship • Pledges and gift of promises (e.g. gifts certificates donated by the issuer) For more information see www.cra-arc.gc.ca/charities

7. Caution: Gifts of Services • A registered charity is not permitted to issue an official donation receipt for a gift of service. At law, a gift is a Voluntary Transfer of Property. Gifts of services (donated time, skills, or efforts) provided to a charity are not property, and therefore do not qualify as gifts for the purposes of issuing official donation receipts. For more information see www.cra-arc.gc.ca/charities

8. Contribution of Services • Example: • ABC landscaping cuts the lawn of a charity • Each visit is worth $150 • ABC cuts the lawn 20 times over the season • At the end of the season, the owner of ABC says “just give me a tax receipt for $3,000” Can the charity give ABC a receipt for $3,000? • NO, cutting the grass is a service not a transfer of property For more information see www.cra-arc.gc.ca/charities

9. Donation receipt cannot be issued for contribution of services • Contributions of services (of time, skills or efforts) are not property, so the services cannot be considered as a gift • If a charity pays a service provider for services rendered and the service provider then chooses to donate the money back, the charity can issue a receipt for the monetary donation (there is a cheque exchange) • Two distinct transactions must take place: • a person provides a service to a charity and is paid for that service • that same person makes a voluntary gift of property to the charity For more information see www.cra-arc.gc.ca/charities

10. 3) Has the donor received something in return for the gift • A charity may choose to give a token of appreciation to the donor in return for the gift – this is called consideration/advantage • Examples: • Property (pen, mug, t-shirt) • Use of property (vehicle, cottage) • Provision of services (giving free daycare services) • In situations where donors receive nothing in return for their gift, a receipt may be issued to the donor for the full amount -eligible amount • Split receipting is when a donor can receive something in return for their gift and still be eligible for a tax receipt (there is a limit on how much advantage a donor can receive in return and still get a tax receipt – 80%) For more information see www.cra-arc.gc.ca/charities

11. 4) What is the amount to be receipted? • A receipt may only be issued for the eligible amount of the gift –the amount by which the FMV of the gifted property exceeds the FMV of an advantage, if any, in respect of the gift • FMV of advantage received must be 80% or less of the FMV of the donation – otherwise no receiptcan be issued (no intention of gift) • Certain advantage are considered too small (10% of the value of property transferred up to max $75) – if below the threshold, full amount is eligible (the rule doesnotapply to the value of the activity that is the object of the fundraising event – e.g. value of a dinner at a dinner fundraiser event) • CAUTION: For gifts in kind, when the donor provides receipts, the eligible amount is net of sales taxes (paying taxes is not voluntary) For more information see www.cra-arc.gc.ca/charities

12. Out-of-Pocket Expenses • A charity cannot simply issue an official donation receipt to a volunteer for the amount of the expenses, in lieu of reimbursing the expenses • A charity can reimburse a volunteer for the expenses incurred on behalf of the charity and later accept the return of the payment as a gift, provided that the amount is returned voluntarily • The parties are encouraged to proceed by way of an exchange of cheques • However, provided the volunteer has a right to reimbursement from the registered charity for the expenses incurred, the charity may treat the right to reimbursement as a gift in kind and issue a receipt for income tax purposes (it should have a written direction from the volunteer) For more information see www.cra-arc.gc.ca/charities

13. Example of written direction I _______________________ direct that the funds to which I am entitled by way of reimbursement for _______________, and would otherwise be forwarded to me by cash or cheque, be transferred to ______________ as my gift. • If the charity issues a receipt for income tax purposes upon the transfer of a right to reimbursement, it should report the amount of the gift on Form T3010, Registered Charity Information Return both as revenue, and as an expenditure. For more information see www.cra-arc.gc.ca/charities

14. What are the tax benefits for the donors? • Currently, the non-refundable charitable donations tax credit (CDTC) is calculated as the total of: • the lowest income tax rate (15% for 2013) multiplied by the first $200 of charitable donations claimed by an individual; and • the highest income tax rate (29% for 2013) multiplied by the portion of the donations claimed by the individual that exceeds $200 • Only donations of money that are made after March 20, 2013 will qualify for the temporary First-Time Donor’s Super Credit (adds 25% to the rates used in the calculation of the CDTC for up to $1,000 of monetary donations – 2013 to 2017) For more information see www.cra-arc.gc.ca/charities

15. Charitable donation tax credit rates For more information see www.cra-arc.gc.ca/charities

16. How can I donate wisely and avoid fraud? • Confirm that the organization is a Canadian registered charity or a qualified donee • Get to know the charity - Start by visiting the charity's Web site to learn about its activities and how it's managed. You can also review its financial information and activities by looking at its Registered Charity Information Return on the CRA website. • Beware of donation schemes that promise you returns greater than your donation.The CRA strongly advises that you not participate in donation schemes or illegal tax filings. • Write cheques payable to the charity, not an individual, or make sure that your online payments are secure. For more information see www.cra-arc.gc.ca/charities

17. Remarks • There is no requirement in the Income Tax Act that charity must issue a receipt for gifts received • Charity may issue one annual cumulative tax receipt for cash donations, but gifts in kind require individual receipts • CRA suggests that charities issue receipts to donors by February 28th of the following year so that donors may claim the deduction on their income tax return • For more information: www.cra.gc.ca/charities 1-800-267-2384 For more information see www.cra-arc.gc.ca/charities

18. Donations & Tax Benefits Thank you for your attention! Presented by: Teodor Amariei, CPA, CGA For more information see www.cra-arc.gc.ca/charities