What Are Gifts in Kind and How Do They Help Canadian Charities?

If you've ever donated clothes, food, or even your services to a charity instead of money, you've made what's called a gift-in-kind. But what does that actually mean? And how do these types of donations help charities in Canada? Let's break it down in a way that's simple to understand.

What Is a Gift in Kind?

A gift in kind is a donation of property other than cash. It could be physical items like books, laptops, or food, or assets like stocks and real estate. This kind of donation is often just as valuable to a charity as a cash donation.

In-kind donation meaning: It simply means you're giving goods or assets instead of money.

When your charity receives monetary donations, you spend that funding on various organizational expenses. However, when you receive a gift in kind—such as office equipment worth $3,000—you can reallocate that money in your budget to other critical needs like program delivery or community outreach.

Types of In-Kind Donations

Gifts in kind fall into one main category: goods and assets. Understanding this distinction is crucial for proper accounting and CRA compliance.

Goods and Assets

A gift-in-kind refers to the contribution of property—physical items or assets—that charities can use to enhance their operations or programs. Under Canadian law, a gift is defined as a voluntary transfer of property. Common examples include:

• Program supplies: Items distributed directly to beneficiaries, such as food for food banks, clothing for shelters, or school supplies for educational programs
• Operational equipment: Office furniture, computers, printers, or vehicles that help with day-to-day operations
• Event materials: Auction prizes, tables and chairs for galas, or decorations for fundraising events
• Professional equipment: Medical devices for health charities, sports equipment for recreation programs, or books for libraries
• Securities and investments: Stocks, bonds, mutual funds, and other securities (subject to specific CRA rules)
• Real estate: Land, buildings, or other real property
• Valuable assets: Art, collectibles, jewellery, or antiques

What About Professional Services?

Important legal clarification: Under Canadian law, professional services—such as legal advice, accounting services, graphic design, web development, or consulting—are not considered gifts in kind because services are not property.

While charities can certainly benefit from donated services, a charity cannot issue a tax receipt for services directly.

The "Cheque Exchange" Method:

If a professional wishes to receive a charitable tax receipt for their services, they must follow this two-step process:

1. The charity must pay the service provider for the services rendered at the provider's standard rate
2. The service provider must then voluntarily donate that specific cash amount back to the charity

This creates a proper audit trail and ensures the service provider accounts for the taxable income. Without this process, no charitable receipt can be issued for professional services.

Volunteer time: Even when provided by skilled professionals, volunteer time itself cannot be receipted as a gift in kind under any circumstances.

Benefits of In-Kind Donations

Gifts in kind offer significant advantages for Canadian charities, donors, and the communities they serve.

For Charities:

• Direct resource acquisition: Receive exactly what you need without the procurement process
• Budget flexibility: Redirect cash that would have been spent on donated items to other critical areas
• Faster implementation: Use donated goods and assets immediately without waiting for approval processes or delivery times
• Community partnerships: Build stronger relationships with local businesses and supporters
• Program expansion: Access resources that might otherwise be financially out of reach

For Donors:

• Alternative giving options: Support causes even when cash donations aren't feasible
• Environmental sustainability: Donate useful items instead of disposing of them
• Tangible impact: See direct, concrete results of their contributions
• Tax benefits: Receive charitable tax receipts for eligible gifts in kind (subject to CRA rules)

What Is an Example of an In-Kind Gift?

Here are some in-kind donation examples:

• A company donates boxes of winter jackets to a homeless shelter
• A grocery store donates extra food to a local food bank
• A business donates office furniture to a nonprofit organization
• An artist donates a painting for a charity auction
• An investor donates publicly traded securities to a registered charity

These are all real-life examples of how people give in meaningful, practical ways.

What Items Are Gift-in-Kind?

Not everything can be a gift in kind, but here are some common gift-in-kind items that charities can accept in Canada:

• Furniture
• Office equipment (like computers and printers)
• Food and hygiene products
• Clothing and footwear
• Vehicles
• Art and collectibles
• Publicly traded securities
• Real estate

These items must usually be in good condition and meet the charity's needs.

What Is the Difference Between a Gift in Money and a Gift-in-Kind?

The main difference is what you're giving:

Both are important. A gift in money gives the charity the flexibility to spend on what they need most, while a gift-in-kind can directly provide the items or assets they might otherwise have to buy.

Gift-in-Kind Donations and Gift Acceptance Policies

The biggest challenge many Canadian charities face with gifts in kind is determining what to accept and what to decline. A well-crafted gift acceptance policy is essential for managing these situations professionally and legally.

Your gift acceptance policy should outline:

• Types of goods and assets your charity can and cannot accept
• Condition requirements for donated items (new, gently used, etc.)
• Valuation procedures for different types of gifts
• Decision-making processes for unusual or high-value donations
• Procedures for declining inappropriate gifts while maintaining donor relationships

Common restrictions might include:

• No opened food products or expired items
• Equipment must be in working condition
• Items must align with your charitable purposes
• Real estate donations require board approval and due diligence
• Securities donations must follow CRA guidelines

Can You Get a Tax Receipt for an In-Kind Donation?

Yes, in Canada, you can get a tax receipt for a gift in kind, but there are rules. According to the Canada Revenue Agency (CRA):

• The item must be property that the charity can use or sell
• The value must be backed up with proper documentation
• The charity must officially accept and record the donation

For example, if you donate a laptop worth $800 and provide proof of value, the charity can issue a donation receipt for that amount.

Important terminology: In Canada, individuals receive tax credits (not deductions) for charitable donations under Section 118.1 of the Income Tax Act. Tax credits reduce the amount of tax you owe directly. Corporations, on the other hand, receive tax deductions for charitable gifts under Section 110.1, which reduce their taxable income.

Tip: Donated services (professional time or volunteer hours) do not qualify for tax receipts under any circumstances, even if they're valuable.

How Do You Ask for a Gift-in-Kind?

If you're a charity or nonprofit and wondering how to ask for a gift-in-kind, here's a simple approach:

1. Know what you need – Make a list of items or assets that would help your operations
2. Reach out directly – Contact businesses or individuals who might have access to those items
3. Be specific – Don't just say "we need help." Say something like, "We're looking for a local business who can donate office furniture for our new community centre"
4. Explain the impact – Let donors know how their gift will make a difference
5. Offer a tax receipt (if eligible) – This makes it more appealing for some donors

Why Gifts in Kind Matter

Many Canadian charities rely on in-kind donations to do their work. Not every organization can afford to buy all the items they need. Gifts in kind reduce costs, allow for more programs to run, and build stronger community partnerships.

For example, a shelter that receives donated blankets can spend more on meals. A nonprofit that receives donated computers can focus its budget on outreach. Every contribution helps.

So, what is a gift in kind? It's more than just a donation—it's a creative way to give property and assets to help others. Whether it's a used laptop, some extra food, or valuable securities, these types of donations are incredibly valuable to Canadian charities.

If you're a charity, start thinking about what items or assets could move your mission forward. If you're a donor, remember: meaningful gifts can take many forms beyond cash.

Recording and Reporting Gifts in Kind

Proper documentation and accounting for gifts in kind is crucial for CRA compliance and financial transparency.

Accounting for Gifts in Kind

Canadian charities must record gifts in kind at their fair market value (FMV) in their financial statements. This ensures accurate reporting and compliance with accounting standards.

Determining Fair Market Value:

The CRA defines Fair Market Value as the highest price that the property would bring in an open and unrestricted market between informed and prudent parties acting at arm's length under no compulsion to act.

Important valuation rules:

For new goods:

• While manufacturers' suggested retail price (MSRP) might be referenced, it is rarely accepted as FMV by the CRA
• Goods often sell for less than MSRP in the open market due to discounts and sales
• Using MSRP can lead to "inflated receipting," which is a high-risk area for CRA audits
• Instead, determine what the item would actually sell for in the current market

For used goods:

• Research comparable items currently available for sale
• Consider depreciation and condition
• Document your valuation method

The Deemed Fair Market Value Rule (3 and 10-Year Rules):

Under Section 248(35) of the Income Tax Act, if a donor acquired property:

• Less than 3 years before the donation, OR
• Less than 10 years before the donation and acquired it with the intention of donating it

Then the value of the tax receipt must be the lesser of the fair market value or the donor's cost (Adjusted Cost Base).

Example: If a donor buys a painting for $500 and its value increases to $5,000 within two years, the charity can generally only issue a receipt for $500 (the donor's cost), not $5,000.

The $1,000 Appraisal Threshold:

While not a strict "law," CRA guidance strongly recommends:

• For any gift-in-kind with a value over $1,000, the property should be appraised by an independent, qualified third party
• For gifts under $1,000, a qualified staff member may perform the valuation
• Failing to obtain proper appraisals for high-value donations puts the charity at risk of having its receipts contested

Recording Process:

1. Determine the fair market value of the donation following CRA guidelines
2. Record the gift as both revenue and expense (or asset) at the same value
3. Maintain detailed documentation including photos, receipts, invoices, or professional appraisals
4. File donations in a separate revenue account in your chart of accounts

Gifts in Kind and Taxes

Understanding the tax implications of gifts in kind is crucial for both charities and donors.

Are gifts in kind tax deductible?

Yes, gifts in kind are generally eligible for tax credits for Canadian donors, subject to CRA regulations. However, specific rules apply:

For tax receipt eligibility:

• The gift must be made to a registered charity
• Goods must have fair market value exceeding $20
• Property must be transferred voluntarily without consideration
• Proper documentation and valuation must be maintained
• The deemed fair market value rules may apply (see above)

Special Rules for Securities:

When donating publicly traded securities (stocks, bonds, mutual funds listed on a designated stock exchange), donors may benefit from elimination of capital gains tax.

However, there are strict rules regarding Non-Qualifying Securities (NQS), such as shares in a donor's private corporation:

• In many cases, a charity cannot issue an official donation receipt for an NQS at the time of the gift
• The gift is only recognized (and receipted) when:
  
  • The charity disposes of the security, OR
  • The security ceases to be an NQS
  • Provided this happens within 60 months
• If the charity still holds the NQS after 60 months, it may need to return the shares

Charitable receipt requirements:

• Charity's full legal name and registration number
• Date the gift was received
• Description of goods or assets (but not the value—donors must determine this themselves)
• Statement that no goods or services were provided in exchange
• Authorized signature from the charity

Do gifts in kind have to be reported on your charity's information returns?

Yes, Canadian registered charities must report gifts in kind on their annual information returns to the CRA. This includes:

• Form T3010: All registered charities must report total revenue, including the fair market value of gifts in kind
• Special reporting: Certain high-value donations may require additional documentation
• Provincial requirements: Some provinces have additional reporting requirements

Special considerations:

• Gifts exceeding $10,000 may require additional documentation
• Cultural property donations have specific procedures
• Vehicle donations over $1,000 require special forms

How to Solicit Gifts in Kind

Just like financial contributions, gifts in kind require strategic cultivation and clear communication about your needs.

Effective solicitation strategies:

1. Create a dedicated needs page on your website

• List specific items your charity regularly needs
• Include photos and detailed specifications
• Provide clear drop-off instructions and contact information
• Update regularly to reflect current priorities

2. Develop targeted solicitation letters

• Research donors who might have access to needed goods or assets
• Write personalized appeals explaining exactly how their contribution will be used
• Include specific examples of impact and community benefit

3. Establish corporate partnership programs

• Reach out to businesses whose products align with your needs
• Offer recognition opportunities in exchange for significant contributions
• Develop ongoing relationships rather than one-time requests

4. Utilize online wish lists and registries

• Create Amazon wish lists or similar platforms for specific campaigns
• Share lists through social media and email newsletters
• Allow donors to purchase and ship items directly to your charity

5. Leverage fundraising events

• Request auction items from local businesses and supporters
• Ask for event supplies like decorations or venue space
• Coordinate with corporate sponsors for additional in-kind support

Best practices for successful solicitation:

• Be specific about what you need and why
• Explain how the donation will advance your charitable mission
• Provide multiple ways for donors to contribute
• Follow up promptly and professionally
• Always express genuine gratitude, regardless of the response

Maximizing Your Gift-in-Kind Program

To build a successful gifts-in-kind program, Canadian charities should:

1. Develop clear policies: Establish comprehensive gift acceptance policies before you need them
2. Train your team: Ensure staff understand CRA requirements and your charity's procedures
3. Build relationships: Cultivate ongoing partnerships with businesses and supporters
4. Maintain proper records: Document everything for tax, legal, and accountability purposes
5. Communicate impact: Show donors how their gifts in kind are making a difference
6. Stay compliant: Regularly review policies and procedures to ensure ongoing CRA compliance

Common Mistakes to Avoid

For Charities:

• Accepting inappropriate or unusable donations due to politeness
• Failing to properly value and document gifts according to CRA guidelines
• Not having clear gift acceptance policies
• Issuing incorrect charitable receipts
• Poor storage or handling of donated goods
• Ignoring the deemed fair market value rules
• Using MSRP without considering actual market value

For Donors:

• Not obtaining proper charitable receipts
• Overvaluing donated items for tax purposes
• Donating inappropriate or damaged goods
• Failing to research the charity's actual needs
• Not understanding the 3 and 10-year valuation rules

Conclusion

Gifts in kind represent a powerful opportunity for Canadian charities to expand their resources, engage new donors, and advance their charitable missions. When properly managed, these donations can provide essential goods and assets while building stronger community partnerships.

However, success requires careful attention to CRA regulations, proper documentation procedures, and clear organizational policies.

By implementing the strategies outlined in this guide, your charity can develop a thriving gifts-in-kind program that benefits everyone involved.

Whether you're just starting to explore gifts in kind or looking to expand an existing program, remember that professional guidance can help you navigate the complexities of Canadian charity law and maximize your impact.

If you need guidance on developing gift acceptance policies, issuing proper tax receipts, or ensuring your gifts-in-kind program meets all legal requirements, B.I.G. Charity Law Group is here to help.

Our experienced charity lawyers understand the intricacies of Canadian charity law and can help you build a compliant gifts-in-kind program that maximizes benefits for your organization and donors. Whether you're establishing policies for the first time or reviewing existing procedures, we provide practical advice tailored to your charity's unique needs. Contact us at 416-488-5888 or email dov.goldberg@charitylawgroup.ca to discuss how we can support your organization.

Ready to optimize your charity's gift-in-kind program? Visit CharityLawGroup.ca to learn more about our services, or schedule a free consultation. Let us help you navigate the complexities of gifts in kind so you can focus on advancing your charitable mission with confidence.

Frequently Asked Questions About Gifts in Kind

Here are answers to common questions about gifts in kind for Canadian charities and donors.

What is a gift in kind for a Canadian charity?

A gift in kind is a donation of property instead of cash. This includes physical items like clothing, furniture, computers, or food, as well as assets like stocks, real estate, and vehicles. Under Canadian law, services like legal advice or graphic design are not gifts in kind because services are not property. Charities cannot issue tax receipts for donated services unless the service provider is paid first and then donates that money back to the charity.

How do gifts in kind help Canadian charities?

Gifts in kind help charities save money and redirect their budgets to other important needs. When a charity receives donated items worth $2,000, they can use that $2,000 in their budget for programs or outreach instead. These donations also help charities build relationships with local businesses and provide resources that might otherwise be too expensive for smaller organizations to afford.

What are examples of common gifts in kind?

Common gifts in kind include office furniture, computers, food, clothing, vehicles, and event supplies. Charities also receive publicly traded stocks, real estate, and art for auctions. All donated items must be in good condition and useful to the charity's mission.

Can donors get a tax receipt for a gift in kind in Canada?

Yes, donors can receive a tax receipt if the donated property has value, is useful to the charity, and is properly documented. Individual donors receive tax credits that reduce tax owed, while corporations receive tax deductions. The charity issues a receipt showing the date and description, but donors determine the fair market value. Donated services or volunteer time cannot be receipted under any circumstances.

How should Canadian charities handle and report gifts in kind?

Charities must record gifts in kind at fair market value and report them on their annual T3010 form. For gifts over $1,000, the CRA recommends getting a professional appraisal. Charities should also know the deemed fair market value rule: if a donor bought the property less than three years before donating it, the receipt value must be the lesser of the fair market value or what the donor paid for it.

Are in-kind donations tax deductible in Canada?

Yes, but individuals receive tax credits (not deductions) that directly reduce tax owed. Corporations receive tax deductions that reduce taxable income. The property must be worth more than $20 to qualify. Special rules apply to publicly traded securities (donors may avoid capital gains tax) and private company shares (receipts can only be issued after the charity sells them, which must happen within 60 months).

Legal Sources & References

• CRA Policy Commentary CPC-017, Gifts of Services.
• CRA Guidance: Deemed Fair Market Value Rule.
• CRA - Determining Fair Market Value.
• CRA - Non-qualifying security.
• Income Tax Act, RSC 1985, c 1 (5th Supp), s 118.1.
• CRA - Issuing receipts for gifts in kind.