We are getting more and more questions these days from museums, galleries and performing arts organizations[1] about what amount they can issue receipt for when they confer some benefit on donors? In most cases we find that the organizations err on the side of conservatism. We have also found that there can be a level of creativity in “rewarding” a donor while maintaining full tax credits for the donation.
In this article we are looking primarily at organizations which provide “entertainment” for the public, are charities and run fundraising campaigns.
We were asked about the following situation.
A donor gave $1,000 to a museum. The museum’s policy was to give donors at this level a pass for three good for a year for attendance at all museum exhibits. The pass (which any member of the public could buy) sells for $150. So a receipt was issued for $850. But it turns out that the donor and the family are only occasional visitors to the museum. The donor subsequently said that a receipt for $1,000 would have been preferred as the pass was “wasted”.
We suggested that a full receipt could be issued for $1,000 and the museum could give the donor four one-time passes which were valued at $10 each.
At this point it is worth looking at the Charity Directorate rules…which we would emphasize are administrative, not statutory. They can be found on the Directorate web site under the term “advantages”.[2]
“An advantage is what a donor may receive in return for his or her donation (for example, a meal, tickets to a show), and it must be taken into consideration when determining the eligible amount of a gift for receipting purposes.
Determining the fair market value of an advantage is similar to determining the fair market value of a gift in kind. However, while only donations of property can be receipted as gifts in kind, the fair market value of any type of advantage (for example services, accommodation, meals) must be taken into consideration when determining the eligible amount of a gift for receipting purposes.
If the value of the advantage is 80% or less of the fair market value of the donation, then a receipt may be issued for the difference (see Split receipting reproduced below).
If the value of the advantage is greater than 80% of the value of the donation, no gift is deemed to have been made, and a receipt cannot be issued.
If the value of an advantage is not more than $75 or 10% of the value of the donation, whichever is less, it is considered nominal (de minimis), and it need not be deducted from the amount of the gift for receipting purposes.
If the FMV of the advantage cannot be determined, a receipt cannot be issued.
Example:
An individual donates $500 to a charity and, in appreciation, the donor receives two theatre tickets worth a combined value of $90 from the charity. The following calculations are used to determine the eligible amount of the gift for receipting purposes:
- Nominal threshold: 10% of $500 is $50. Therefore the advantage must be $50 or less to be considered de minimis.
- Advantage threshold: 80% of $500 is $400. Therefore the advantage must be less than $400 for a receipt to be issued.
In this example, the advantage is not de minimis, and must be deducted from the value of the gift. However, the value of the advantage does not exceed 80% of the value of the donation, so a receipt can be issued.
The eligible amount for which a receipt can be issued is $500 – $90 = $410.”
If we return to our original example, the donation is $1,000, the value of the advantage is $40 and this falls within the de minimis test and the receipt issue can be $1,000. We’d note that the museum could have issued seven such passes with no negative effect on the receipt.
What about “split receipting”?
“Split receipting is the method used to calculate the eligible amount of a gift for receipting purposes when the donor has received an advantage (consideration) in return for his or her donation. To figure out the eligible amount of the gift, a charity has to subtract the fair market value (FMV) of the advantage from the FMV of the gift.
- Where a donor receives an advantage in exchange for a gift, a charity must be able to come up with an accurate figure for the FMV of that advantage.
- The gift, minus the advantage, still has to constitute a voluntary transfer of property and meet the intention to make a gift threshold.
When the FMV of an advantage received for a gift is more than 80% of the FMV of the gift itself, the Canada Revenue Agency (CRA) generally considers that there is no true intention to make a gift. Therefore, a charity cannot issue a receipt.
Example:
An individual donates $100 to a charity and in return receives a ticket to an art exhibit valued at $50.
| FMV of gift | $100 |
| FMV of advantage (ticket received by donor) | $ 50 |
| Intention to make a gift threshold (80% of FMV of gift) | $ 80 |
Since the FMV of the advantage received by the donor ($50) falls within the intention to make a gift threshold ($80) the charity can issue a receipt.
If the FMV of the advantage had been $81 or more, the intention to make a gift threshold would not have been met and the charity could not issue a receipt.
Sometimes, although not very often, the intention to make a gift threshold has not been met but there was a clear intention to make a gift. In these cases, the donor must be able to prove to the CRA that they intended to make a gift.”
The CRA web site then goes on to discuss the de minimis rule which was the subject of the earlier discussion.
So it is possible with some case and after discussions with the donor to come up with “advantages” which do not reduce the amount of the charitable tax receipt.
There are clearly benefits which can be conferred which are attractive but which do not qualify as “advantages”.
For example, a major theatre gives donors at a specific level (and this is not spelled out on their web site) reserved parking spots for any concerts to which they hold tickets. The spots in question are located for quick entry to the theatre which allows the ticket holders to arrive very soon before the starft of the performance. But the ticket holder pays full price for parking so there is no dollar value to the perk…only a convenience value. The donors also are given an opportunity to use an electronic pass to the parking area (avoiding line-ups at the entrance) with the parking charges being charged directly to a credit card.
We can tell you that these “parking perks” are highly valued by donors even though there is no dollar value.
Another such perk is access to a member’s lounge where one can sit down prior to a performance or during intermission. You can get a drink there but you pay for it (water is free!) but more to the point is that you needn’t stand throughout the intermission if you choose not to and you can buy a drink without fighting through a score or more other thirty patrons.
The point is that with some thought (and consultation) an attractive package of perks from major donors can be put together without having to reduce the value of the charitable receipt.
[1] Probably because of our role as Chair of the Museums Foundation of Canada.
[2] https://www.canada.ca/en/revenue-agency/services/charities-giving/charities/operating-a-registered-charity/issuing-receipts/split-receipting.html