Charity FAQs

When a business donates towards the expenses of a charity's event or activity, and in exchange, the charity publicizes or endorses the business's brand, merchandise, or offerings, this is known as sponsorship.

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Can a registered charity recognize a business for its contribution and provide an official donation receipt to the same business?

Provided that a business is acknowledged similarly to all other donors without any preferential handling, and the acknowledgement is negligible, a registered charitable organization can provide the business with a receipt totalling the entire amount of the contribution.

However, if a business obtains superior acknowledgement for its contribution or anything above minor recognition (such as signs or marketing of products), that would be counted as a form of sponsorship. As providing sponsorship confers an advantage, the fair market value is usually subtracted from the contribution total for the purpose of providing receipts. Ascertaining the exact value of the sponsorship can prove challenging, and this may prevent the charity from being able to furnish an official donation receipt to the sponsoring business. In these situations, the business can state the contribution as an advertising expenditure.

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Aspects to take into account in sponsorship scenarios

When evaluating sponsorship situations, it's crucial to consider each one on its merit and consider a range of factors. Some of the key considerations include:

• The source of the donation: Is the contribution from an individual or a business? Typically, individuals are not expected to benefit from name recognition financially. If any benefits do exist, they're usually of little value. However, there may be exceptions where using the donor's name could be advantageous for a business, particularly if the donor is closely associated with it.

• The purpose of the donation: Is the primary objective of the donation to gain recognition?

• Agreeing: Whether there is any written or unwritten agreement that indicates the donor expects to receive a benefit in return for their donation.

• The form of recognition: How is the donor being acknowledged, such as through newsletters, plaques, or cards? Is the acknowledgement intended only for participants of the charitable organization or is it accessible to the public?

• Determination of worth: Whether the value of the recognition, such as promotion, advertising, or sponsorship, can be accurately calculated.

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Other considerations to be aware of

As per the split-receipting regulations, it is necessary to compute the value of all benefits to issue a receipt for the eligible amount of a gift.

If the value of these benefits cannot be assessed, the charity may not be able to provide a receipt to the donor. Furthermore, if these benefits’ value surpasses 80% of the gift's value, the Canada Revenue Agency may doubt the donor's actual intention to make a gift, and the charity may not be authorized to issue a receipt.

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Examples

Example 1

Maggie's Bakery provides a corporate donation to the food bank (a registered charitable organization) to assist with their operations. The food bank lists all donors in their monthly newsletter, including Maggie's Bakery in the list of supporters. The bakery will not receive any other benefits from the food bank. 

Q. Is the food bank allowed to provide an official contribution receipt to Maggie's Bakery for its contribution? 

A. Yes. Maggie’s bakery is being acknowledged in the same way as all the other contributors. As the bakery is not receiving any benefits other than being listed in the newsletter like other donors, the food bank can issue an official donation receipt to Maggie's Bakery for its contribution.

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Example 2

Linda's Eatery donates $3,000 to a local charity's fundraising gala in exchange for having its logo prominently displayed on all event signage and advertisements. 

Q. Is the charity allowed to provide an official contribution receipt to Linda's Eatery for their contribution?

A. Probably not. The eatery is receiving marketing benefits as a result of its donation, and the charity needs to be able to compute the cost of these benefits to provide a receipt. In situations where the cost of the benefits cannot be ascertained, it becomes impossible to determine the eligible amount of the gift. Consequently, the bakery may opt to declare the donation as an advertising cost.

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Example 3

Oliver Brown is an employee at a local hardware store. When he hears about XYZ charity's fundraising event, he agrees to donate $200 to sponsor a food booth. There will be a sign at the booth that reads "Thank you Oliver Brown for sponsoring this food booth."

Q. Is XYZ charity authorized to provide Oliver Brown with an official donation receipt for his contribution of $200?

A. Yes. Although Oliver will receive some social recognition for his gift, he will receive no material advantage and his employer will not receive any promotional or advertising benefits. Therefore, XYZ charity is able to provide Oliver with an official donation receipt for his contribution.

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Example 4

Joe Lee is a popular local musician who regularly performs at various venues around town. Joe donates $500 to support the operations of XYZ charity, and in recognition of his gift, the charity will feature Joe's name and photo prominently on its website and social media channels for the next month.

Q. Can XYZ charity provide Joe Lee with an official donation receipt for his $500 contribution?

A. Probably not. Joe Lee's name and image are closely associated with his music career, which stands to benefit from the publicity generated by the charity's recognition. To issue a receipt, the charity needs to accurately compute the promotional benefit’s value. However, if the value is indeterminate, the charity cannot establish the eligible amount of the gift.

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