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?
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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.More...
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.
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