This module covers basic information on how to issue proper tax donation receipts for a charity auction. The module answers questions such as: How do we determine Fair Market Value (FMV) of an auction item? What do we need to know to issue a receipt to the donor of an item? What do we need to know to issue a receipt to the successful bidder? Does De Minimis apply?
This module covers basic information on how to issue proper tax donation receipts for a charity auction.
The module answers questions such as:
- How do we determine FMV of an auction item?
- What do we need to know to issue a receipt to the donor of an item?
- What do we need to know to issue a receipt to the successful bidder?
- Does De Minimis apply?
Auctions – The Basics
At fundraising events, it is common to have an auction as an activity to raise funds. Generally, the auction items are donated.
Charity auctions usually involve two separate transactions where tax receipts may be issued:
- property donated for the auction (to donor)
- property purchased at the auction (to bidder)
In both transactions, the fair market value (FMV) or deemed fair market value (if applicable) has to be determined before tax receipts can be issued.
Determining the FMV of Gifts for an Auction
Donated auction items are mostly gifts-in-kind. The FMV of gift-in-kind is what you, as a consumer, would have to pay for the item in the open market. In special cases, deemed fair market value rules may apply.
For items over $1,000, CRA strongly recommends that they be appraised by a professional.
Note: The FMV of an auction item is not affected by the successful bid price.
More information on FMV is available at www.charitycentral.ca/site/?q=node/53
Issuing Receipts to the Successful Bidder:
- split receipting rules apply
- the FMV of the item must not be more than 80% of the bid price or the bid price has to be 20% over the FMV, i.e. it must pass the Intention to Make a Gift threshold
The complete requirements that need to be met are:
- the FMV of the item is determined
- this value is posted before the start of the auction
- the value of the auction item (advantage) does not exceed the Intention to Make a Gift threshold, that is, 80% of the price paid
- the value of the auction item (advantage) does exceed the De Minimis threshold
Mr. J. Smith donates an IPod Classic to your Charity for an auction. The fair market value of the IPod Classic is $280. This value is posted with the IPod at the start of the auction.
Ms. Song was the highest bidder at the price of $400.
There are two transactions that receipts may be issued for:
For the donor, Mr. Smith.
This is a gift-in-kind without advantage.
The FMV of the IPod Classic is $280.
So a receipt can be issued to Mr. Smith for $280.
- Receipt for the successful bidder, Ms. Song
The FMV was determined and posted with the item. To determine the amount of the official donation receipt for Ms. Song, your Charity has to complete this checklist:
Bid price $400
Value of the IPod $280
To determine the eligible amount for Ms. Song’s official donation receipt, there are two questions your Charity must consider:
- Does the bid meet the Intention to Make a Gift threshold? (80% of the bid price, $400 = $320)
Answer: The value of the IPod is only $280 which is less than $320.
Yes. This can be considered a gift.
- Does the advantage (IPod) exceed the De Minimis threshold, that is, 10 per cent of the bid price or $75, whichever is less?
Answer: The threshold is $40 (10 per cent of $400) and the IPod is $280.
Yes, the advantage exceeds the De Minimis threshold.
It should be included in determining the eligible amount.
The eligible amount on the receipt is the bid price over the FMV of the advantage (the IPod).
$400 – $280 = $120
An official donation receipt can be issued for $120 to Ms. Song (successful bidder).
Information in this module is provided for general educational purposes and not as legal or accounting advice. Consult a lawyer or accountant for professional advice.
Information is accurate as of January, 2009.
For changes after this date, consult Canada Revenue Agency.