When an Advantage is not an Advantage
By: Arthur Drache
Everybody who raises funds in Canada for a charity presumably is aware of the fact that when a gift is made, a receipt can be issued for the full amount minus any advantage which accrues to the donor.
So, for example, if a donor gives a museum $1,000 and gets in return a family membership which would cost $150, then the receipt to be issued would be $850.
But what we are seeing is situations where the organization seems to be going overboard and in effect denies a receipt for part of the donation where this is not necessary.
Consider this advertisement (we have deleted the organization’s name)
“Make a donation to buy a concrete paving stone for the grounds of (the X museum) and have it engraved with a message that is meaningful to you.
Each paver is $500.[1]
Of your payment, $50 is the cost of the engraved paver and $450 is a donation.
Therefore, your donation tax receipt will be for $450.”
In our view, the fact that the receipt was discounted, presumably because of some benefit to the donor is a misapprehension of the rules for a number of reasons.
As with the analogous situation we have seen where donors get the right to have their names on a seat in a theatre (though with no right to occupy said seat) there is no benefit for two distinct reasons.
First, the donor does not acquire the seat. Nor is there any right associated with the seat.
Therefore, the donor gets no benefit which is translatable into dollars, one of the prerequisites to setting a value on an “advantage.”
Second, it is important to understand that getting the right to put your name on a wall, a building or a “paver” is not a benefit which triggers an advantage. It is common, of course, that donors be recognized in a variety of ways. These include for example, having names on the wall of an institution. Such recognition does not constitute an advantage which would require the reduction of the receipt given
Some years ago the CRA issued a ruling involving the naming of a hospital after its benefactor (something which is happening more and more often these days.) [2] . We wrote as follows:
“The ruling reiterates the long-standing position that the gift by the corporation is in fact a gift by the corporation and that even if the shareholder was involved in the negotiations for the gift, he or she would not be treated as having received a taxable benefit.
More to the point, the ruling goes on to say:
“Provided that there is no prospective economic benefit associated with the naming rights described in the Agreement, it is our opinion that the amount of the advantage of such naming rights would be nil for the purpose of subsection 248(31) of the draft legislation released by the Minister of Finance on February 27, 2004.”
In plain English, the ruling takes the position that the mere naming of a facility (or in this case, a fund) after a person other than the donor does not normally constitute and economic benefit conferred by the charity and thus, even under the proposed legislation, a receipt can be issued for the full amount of the gift.”
While the donor in this case was a corporation, this ruling clearly would be even more apposite to an individual gift.
While donors may draw attention to the question of perceived tangible benefits and a reduced receipt, fundraisers should try to think through the issue of whether a benefit or advantage which is capable of being valued is being conferred before the receipt is discounted.
[1] A friend of ours in Australia offered us such a paver at an animal shelter in Gold Coast for $30!
[2] See of May, 2005 issue at page 37