Under the Income Tax Act, a charity can issue official donation receipts for income tax purposes for donations that legally qualify as gifts.
A gift is defined as a voluntary transfer of property without valuable consideration.
To qualify as a gift, all three of the following conditions must be met:
- Some property, either in the form of cash or a gift-in-kind, is transferred by a donor to a registered charity.
- The property is given voluntarily. The donor must not be obliged to part with the property, for instance as the result of a larger contract or a court order.
- The donor is transferring the property to the charity without expecting anything in return. No benefit of any kind may be provided to the donor or to anyone designated by the donor as a result of a gift.
To issue an official donation receipt, a registered charity must determine whether or not the donation constitutes a gift.
A registered charity can only issue an official donation receipt to the individual or organization that made the gift, and the name and address of the donor must appear on the receipt.
A charity cannot issue an official donation receipt in the name of anyone but the true donor.
Once a registered charity has determined that a gift has been made, it must determine the eligible amount of that gift for receipting purposes in order to issue an official donation receipt.
To determine the eligible amount of a gift, a charity must know:
- The fair market value of the donated property; and
- The fair market value of any advantage provided to the donor.
Before the charity can issue an official donation receipt, any advantage must normally be deducted from the fair market value of the donation.
