S7. One of our donors would like to make a donation and receive advertising or sponsorship status in return. Can our charity do this and, if so, how should we make out the receipt?

S7. One of our donors would like to make a donation and receive advertising or sponsorship status in return. Can our charity do this and, if so, how should we make out the receipt?


Short answer

Generally no, but there’s more that you should know. Sponsorship is not considered a gift, since the sponsor receives an economic benefit. Note, however, that a corporation may choose to support the same event or the same organization through both a sponsorship and a charitable gift. Where it does so, the charitable receipt must acknowledge only the amount of the gift. Since businesses receive a deduction rather than a credit for charitable gifts, the tax treatment is the same whether the business gives the funding in exchange for advertising or purely as a donation.

Long answer

Distinguishing between gifts and sponsorships can be difficult. If a business receives a nominal level of recognition, and is essentially treated the same as other donors, a receipt may be issued for the full amount of the donation. Exceptional treatment, or heightened recognition above other donors, however, can constitute advertising, which is seen as an advantage.

A contribution can be considered to be both a sponsorship and a donation if

  • the fair market value of the advantage (often advertising) can be established and
  • the amount contributed exceeds the fair market value of that advantage.

In this circumstance, a charitable receipt may be given for that portion that exceeds the fair market value.

If the advantage outweighs the value of the gift, a receipt is not appropriate.

In most cases, it is a challenge to establish the fair market value of advertising or sponsorship. Putting a value on something as hard to define as advertising requires professional help. Some professionals have developed methods for valuing such things as a banner, a print ad, and a website ad. It’s best to use an expert in these matters given the consequences of an inaccurate valuation and the CRA’s concern with a valuator’s qualifications. The CRA recommends using an independent valuator when the estimated value of the transaction is greater than $1000.

More...

Even without a charitable receipt, a business contributor may still enjoy the advantageous tax treatment of advertising or sponsorship. Corporations can deduct advertising expenses against their income. If a business makes a payment to a charity partly for business reasons and partly for philanthropic reasons, it is entitled to deduct both parts of the contribution from its expenses – although one portion as advertising or promotional expenses and the other portion as charitable expenses. Make sure when approaching businesses that you discuss with them both a contribution in the form of a sponsorship and a contribution in the form of a gift.

For more information see also: The tax aspects of corporate sponsorships by Adam Aptowitzer