If you’re part of a relatively new nonprofit organization, you may feel a bit daunted by the process of tax receipting in Canada.
Even if you’ve been in the nonprofit world for a while you know how complicated it can be.
Understanding and complying with Canada Revenue Agency regulations is an important and necessary aspect of operating a charity or nonprofit. And properly tracking, managing and receipting your donors is of the utmost importance.
Here are three tips for tax receipting in Canada to help you accurately issue receipts.
Tip 1: Fair market value for in-kind donations
In Canada, nonprofits are permitted to accept in-kind (non-monetary) donations. These could be new or used goods but are not services. Any in-kind donations are eligible to receive a receipt if they meet the criteria outlined by the Canadian Revenue Agency. However, receipts must be issued based on fair-market value, not just what the donor says it’s valued at.
According to the Canadian Revenue agency, “the person who determines the fair market value of the item should be competent and qualified to evaluate the particular property being donated.” Read this article for more about determining fair-market value and other considerations when determining whether to accept in-kind donations.
Tip 2: Account for advantages
Many nonprofit organizations offer incentives or thank-you gifts such as books and decor in exchange for donors giving a certain amount of money. In Canada, these are considered “advantages” and the product’s value must be subtracted from the total amount donated when tax receipts are issued.
For example, if a person donated $100 and you gave them a mantle clock valued at $45 in return, then you would issue a tax receipt to the donor for $55.
Advantages come into play when making any type of donation, including in-kind donations, so it’s important to pay attention to the value of the donations versus the value of the incentive and ensure they’re properly aligned. Read more about determining the fair market value of an advantage here.
Tip 3: Issue receipts in payee’s name
While it’s common for people to donate towards a charity in someone’s else’s name, in Canada the official tax receipt must be issued to the payee, also called the true donor.
This term may seem a bit confusing on the surface but think of it this way: you must issue the receipt to the person who actually made the donation. If the gift came in “on behalf” or “in memory” of another person, and is otherwise anonymous, then you don’t know the true donor and you cannot issue a tax receipt for that donation.
Where you can determine a true donor, either by the name on their cheque, the name on their credit card, or some other means, then you can offer a tax receipt in the payee’s name.
Still have questions about tax receipts? The Canada Revenue Agency has a helpful checklist outlining everything that needs to be included on a tax receipt so you won’t miss a thing.
If you’re feeling overwhelmed, don’t have sailors with extra time, or find yourself without a marketing crew, perhaps ours at Anchor Marketing can lend a hand. Come visit us at the beach or send us a message at email@example.com.