What is an official tax receipt?
A receipt is a written acknowledgement that a donation was made to a charity.
Registered charities can issue "official tax receipts". They are also allowed to give more informal receipts.
An official tax receipt gives a tax advantage to individuals and businesses that donate: it can reduce the amount of income tax they owe. Because of this tax advantage, an official tax receipt must contain certain information.
Do registered charities always have to give official tax receipts for donations?
No. Being able to issue official receipts for tax purposes is often seen as one of the main advantages of becoming a registered charity since only registered charities are allowed to issue them. The receipts can reduce income tax owed by people and businesses that donate, so they can encourage donations. However, there is no legal requirement to issue receipts for donations.
There is a lot of administrative work involved in issuing official tax receipts. Some charities therefore decide not to issue this kind of receipt. Other charities only issue them in certain cases, for example, for donations above a certain amount.
Can official tax receipts be issued for any kind of donation?
No. Official tax receipts can only be issued when the donation qualifies as a “gift” under the law. A gift must be:
- Voluntary: the donor can’t be under an obligation to make the donation.
- Actually transferred from the donor to the charity. Pledges do not qualify until they have been fulfilled.
- Cash or a gift in-kind. Gifts-in-kind are shares in a company, computers, equipment, artwork, land, buildings, etc.
IMPORTANT! Tax receipts can't be issued for gifts of services. A service could be cutting the grass, for example. However, if a charity pays for the services and the person performing the services voluntarily returns this payment as a gift, the charity can issue a receipt.
The following generally do not qualify as gifts:
- gift certificates, coupons, tickets for events. But if the donor paid for them and they were issued by someone other than the donor, they do qualify and a receipt can be issued.
- loans of property or rental of a premises
- donations in exchange for advertising or sponsorship
- payment for a lottery ticket or other chance to win a prize
- basic fees for admission to an event (e.g., a concert)
- membership dues. But if the donor only gets basic services in return for the dues (basic services include things such as a right to vote and annual reports), a receipt can be issued for the dues.
What if someone donates a thing instead of money?
When someone donates a thing instead of cash, it is called a gift-in-kind. Here are some examples:
- shares in a company
- land and buildings
To issue a receipt for a gift-in-kind, a charity must figure out its dollar value. Charities must calculate this amount according to what is called “fair market value” (FMV).
FMV usually means: the highest price the thing would bring in if it were sold by a knowledgeable seller to a knowledgeable buyer in the regular marketplace and the seller and buyer were acting independently of each other, also called acting at arm’s length.
The FMV must be determined as of the date the thing is transferred to the charity. Taxes paid by the donor when she first purchased the thing are not included when calculating the FMV.
If a gift-in-kind to a charity is worth less than $1,000, a member of the charity or someone with knowledge of the value of the gift can determine its FMV. This can be done by looking at prices for the same or similar goods.
For more valuable gifts-in-kind, the Canada Revenue Agency recommends getting a professional, such as an appraiser, to evaluate the FMV, although this is not legally required.
If it is impossible to determine the FMV, the charity should not issue a receipt.
Important! With some kinds of gifts-in-kind, there is a special rule: a receipt must be issued for whatever is lower, the FMV or what the gift cost the donor. This rule - called the “deemed fair market value rule” - applies in the following situations:
- the gift was acquired by the donor less than 3 years before the donation
- the gift was acquired by the donor less than 10 years before the donation and one of the main purposes of acquiring it was to donate it
- the gift was acquired by the donor in the context of a tax shelter arrangement
Since some kinds of gifts-in-kind are not included in this special rule, it is a good idea to read the full explanation of the deemed fair market value rule on the website of the Canada Revenue Agency.
There are also special rules for donations of cultural property and ecological-sensitive land. To learn more, consult the alphabetical index on the Canada Revenue Agency’s website.
Is a receipt always issued for the full amount of a donation?
Not always. If the donor received something in return for the donation, the value what she received must be deducted from the amount of the donation when an official tax receipt is issued. The value of what the donor got is officially called an “advantage”. The process of deducting the advantage from the amount of the receipt is called “split receipting”.
What is an “advantage”?
It means something the donor gets as a benefit or thank-you for making the donation. An advantage can be a thing or a service. Here are some examples:
- a meal included as part of a fundraising gala
- green fees during a golf tournament
- tickets to a show
- books, CDs, coffee mugs, t-shirts
- a service such as child care
- guest speakers
Even if the advantage was given to the charity free of charge, it must still be deducted from the amount of the donation.
How is the value of the advantage calculated?
It is calculated based on its “fair market value” (FMV), which is also used for gifts-in-kind. FMV means the highest price the thing would bring in if it were sold by a knowledgeable seller to a knowledgeable buyer in the marketplace and the seller and buyer were acting at arm’s length.
If a charity cannot determine the FMV of an advantage, no receipt should be issued. If a charity is unsure of the value of an advantage when it is organizing a fundraising event, it can tell donors it will give a receipt for the amount allowed by law.
Can you give me some examples of calculating an advantage?
A donor pays $100 for a charity dinner. The charity determines that the fair market value of the meal at a comparable facility is $20. The official receipt should be made for $80.
Maximum Advantage Rule
There is a rule about the how much of an advantage a donor can get in return for a donation and still get a receipt: an advantage cannot be worth more than 80% of the value of the donation. If it is more, no receipt can be issued.
Small Advantage Rule
If the value of an advantage is less than 10% of the value of the donation and does not exceed $75, it usually does not have to be deducted from the donation when a receipt is issued. The Canada Revenue Agency calls this the “de minimus rule”. There is one exception to this rule: if the advantage is in the form of cash or “near cash” (gift certificates, coupons, vouchers, etc.), it must still be deducted from the amount of the donation when a receipt is issued.
There is one exception to the small advantage rule: if the advantage is in the form of cash or “near cash” (gift certificates, coupons, vouchers, etc.), it must still be deducted from the amount of the donation when a receipt is issued.
At what time of the year should official tax receipts be issued?
There are no rules about when official receipts must be issued. However, it is a good idea to issue them by February 28 of the calendar year that follows the calendar year in which the donation was made. This way, donors can use them for tax purposes.
For example, if a donation was made October 1, 2010, the receipt would be issued no later than February 28, 2011. The donor could use the receipt in her 2010 tax return.
Can one official tax receipt be issued for several donations from the same person?
For cash donations, a registered charity can either issue receipts throughout the year or issue one receipt for all donations from the same person.
But for gifts-in-kind (non-cash donations), a separate receipt must be issued for each gift.
What if someone asks for a receipt in someone else's name?
A registered charity can only issue an official tax receipt in the name of the true donor: the individual or organization that made the donation.
If spouses have a joint bank account, the donation is made using a cheque, and both names appear on the cheque, the charity can issue a receipt to either spouse, or to both of them for part of the donation, no matter who signed the cheque.
If an organization - a business, for example - makes a donation and asks a charity to issue a donation receipt in the name of an individual, the charity can only issue the receipt if the organization can show that the individual is the true donor.
A registered charity must be reasonably sure that the name it writes on the receipt is the name of the true donor. If a charity cannot determine the name of the true donor, it should not issue a receipt.
What if someone wants to make an anonymous donation?
Normally, the name of the donor must appear on an official receipt. However, if certain procedures are followed, a registered charity can issue a receipt without this information.
To learn more, consult the section on anonymous donations on the website of the Canada Revenue Agency.
What if a donor insists that a donation be used for a specific person or program?
A registered charity cannot issue a receipt if the donor asks that the donation be given to a specific person or family.
But in some cases, a donor can direct that the donation be used for a particular program operated by the charity, as long as the ultimate decision regarding use of the donation within the program remains with the charity. To learn more, consult the explanation on designated or directed gifts on the website of the Canada Revenue Agency.
What information must appear on official tax receipts?
Donations of cash
The following information must appear:
- a statement that the document is an official receipt for income tax purposes
- name and address of the charity on file with the Canada Revenue Agency
- the charity’s registration number
- serial number of the receipt
- place the receipt was issued (for example, Montreal)
- day or year the donation was received
- day the receipt was issued if different from the day the donation was received
- full name and address of the donor. For individuals, the name must include first name, last name and initials.
- total amount of the donation
- value and description of any advantage received by the donor.
- if there is an advantage, the total amount of the donation less the advantage. This amount is also known as the “eligible” amount or the amount the donor can claim for tax purposes.
- signature of a person authorized by the charity to acknowledge donations (If certain requirements are met, charities can use a facsimile (copy) of the signature. To learn more, consult “computer-generated receipts” on the website of the Canada Revenue Agency.)
- name and website address of the Canada Revenue Agency (www.cra-arc.gc.ca)
Gifts-in-kind (non-cash donations)
All of the information listed above must appear, plus:
- day the donation was received (if not already indicated)
- short description of the gift
- fair market value of the gift at the time the gift was made
- if a professional appraiser was used to determine the value of the gift-in-kind, the name and address of the appraiser
Because of the different requirements for cash and gifts-in-kind, it can be a good idea to have 2 formats of receipts.
For more information on receipts and to see samples, consult the sample official receipts on the website of the Canada Revenue Agency.
Can a charity use computer-generated receipts or send them by email?
These can be used under certain conditions:
- The computer system used to store the receipts must be protected by a password and restrict modification of donor records.
- Donor records must be stored in a format that cannot be erased, such as paper or burned CDs.
- It must be possible to print copies of the receipts on request by the Canada Revenue Agency.
Receipts Sent by Email
These are also allowed, but the Canada Revenue Agency recommends the following:
- Receipts should be in a format that protects them from being changed (for example, PDF).
- Receipts should be protected from computer hackers by proper software.
- Documents should be encrypted and signed with an electronic signature.
- The electronic signature should be kept under the control of a responsible person with permission to use it.
- The charity must keep copies of receipts sent by email.
Our video Introduction to Registered Charities
This article explains in a general way the law that applies in Quebec. This article is not a legal opinion or legal advice. To find out the specific rules for your situation, consult a lawyer or notary.