Corporate Sponsorship Fact Sheets

Cash Donations In Kind DonationsGifts of Services

CASH DONATIONS


Donations from corporate sponsors are critical to the financial success of ACT’s fundraising events. To protect our corporate sponsors, once a commitment has been made, a sponsorship agreement is signed between ACT and the sponsor. This agreement serves both to clarify the terms and conditions of the sponsorship and to function as supporting documentation, if required to initiate the sponsor’s internal cheque requisition process. Upon receiving the cash donation, ACT will issue an “Official Receipt”, to express the agency’s appreciation for the financial support and to provide the sponsor with formal recognition of the fulfillment of their sponsorship commitment.

In the past, ACT has issued official income tax receipts for donated merchandise if this was requested by the sponsor. If an official income tax donation receipt was issued for the fair market value of merchandise, the Canada Revenue Agency (CRA) required the sponsor to record, in their books and records, both “sales” revenue and “donation” expense equal to the amount of the tax receipt to have the effect of cancelling each other out. The actual cost of the merchandise, to the sponsor, would then be included in the “cost of goods sold” expense for the period in which the donation was made.

The need to record all of the transactions required by the CRA not only creates additional book keeping for the sponsor but actually creates a problem for ACT in maintaining its own charitable status. As a charitable organization, ACT is required to spend 80% of the amount that it issues in official income tax receipts on programs and services with the other 20% representing an allowance for administrative costs for the agency. When ACT issues a tax receipt for merchandise that is used in a fundraising event, the CRA expects ACT to spend 80% of the face value of this receipt on program expenses even though it does not have the full value in cash.

In discussing the situation with the CRA and reviewing the policies of other major charitable organizations, ACT has adopted a policy of not issuing official income tax receipts for merchandise donated by corporate sponsors given that there is no financial benefit to the sponsor which might justify the tax compliance problems it creates for ACT. If there are further questions regarding the receipt policy for donations of merchandise, please contact the agency and ask to speak to the Director of Operations at 416-340-8484 ext 227.


For further information please refer to the INCOME TAX ACT- GIFTS AND OFFICIAL DONATION RECEIPTS; Section 110.1 and 118.1 see IT-110R3: Canada Revenue Agency.



IN KIND DONATIONS


Donations of merchandise from corporate sponsors who support ACT’s fundraising events represent a key factor in ensuring the financial success of these very unique events. To protect our corporate sponsors, once a commitment has been made, a sponsorship agreement is signed between ACT and the sponsor. This agreement serves to clarify the terms and conditions of the sponsorship.

In the past, ACT has issued official income tax receipts for donated merchandise if this was requested by the sponsor. If an official income tax donation receipt was issued for the fair market value of merchandise, the Canada Revenue Agency (CRA) required the sponsor to record, in their books and records, both “sales” revenue and “donation” expense equal to the amount of the tax receipt to have the effect of cancelling each other out. The actual cost of the merchandise, to the sponsor, would then be included in the “cost of goods sold” expense for the period in which the donation was made.

The need to record all of the transactions required by the CRA not only creates additional book keeping for the sponsor but actually creates a problem for ACT in maintaining its own charitable status. As a charitable organization, ACT is required to spend 80% of the amount that it issues in official income tax receipts on programs and services with the other 20% representing an allowance for administrative costs for the agency. When ACT issues a tax receipt for merchandise that is used in a fundraising event, the CRA expects ACT to spend 80% of the face value of this receipt on program expenses even though it does not have the full value in cash.

In discussing the situation with the CRA and reviewing the policies of other major charitable organizations, ACT has adopted a policy of not issuing official income tax receipts for merchandise donated by corporate sponsors given that there is no financial benefit to the sponsor which might justify the tax compliance problems it creates for ACT. If there are further questions regarding the receipt policy for donations of merchandise, please contact the agency and ask to speak to the Director of Operations at 416-340-8484 ext 227.


For further information please refer to the INCOME TAX ACT- GIFTS AND OFFICIAL DONATION RECEIPTS; Section 110.1 and 118.1 see IT-110R3 (revised Interpretation Bulletin): Canada Revenue Agency.


GIFTS OF SERVICES


Donations of gifts of services from individuals and corporations are important to the fundraising efforts of ACT, as they help to ensure the financial success of all of our events. To protect those who contribute services, once a commitment has been made, a sponsorship agreement is signed between ACT and the sponsor. This agreement serves to clarify the terms and conditions of the sponsorship.

The Canada Revenue Agency (CRA) is very clear in its rules and regulations that a charity cannot issue official income tax receipts to either corporations or individuals for their gifts of services. A receiptable gift must involve property. Contributions of services (that is time, skills, effort) are not considered property and do not qualify. The CRA does permit a charity to pay for services and then accept a return payment as a gift, provided it is voluntary. An official income tax receipt would then be issued for the gift. This is often referred to as a “cheque exchange” because the CRA requires the charity and the sponsor to actually issue separate cheques. However, in a cheque exchange, the CRA requires the sponsor to record, in their books and records, revenue equal to the amount paid by the charity and an expense equal to the amount of the donation to have the effect of cancelling each other out.

As noted, a cheque exchange for equal amounts of revenue and expense will not typically affect the taxable income of the sponsor corporation. However, in invoicing ACT for the services, all applicable taxes will need to be charged. These taxes represent an expense to ACT as the agency must absorb 100% of any PST and 50% of the GST charged. As well, due to CRA regulations, ACT can only enter into a cheque exchange where the payment from ACT, the donation received, and the issuance of the official income tax receipt are to the same corporate entity. Therefore, since there is generally no benefit to the sponsor, ACT would prefer not to enter into a cheque exchange arrangement. If there are unique circumstances under which a cheque exchange would be appropriate please contact the agency and discuss these circumstances with the Director of Operations at 416-340-8484 ext 227.

For further information please refer to the INCOME TAX ACT- GIFTS AND OFFICIAL DONATION RECEIPTS; Section 110.1 and 118.1 see IT-110R3 (revised Interpretation Bulletin): Canada Revenue Agency.