Tax & Gaming Rules

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AUCTIONS
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Canada ONTARIO (Nov 2003)

Rules concerning donation of Alcohol to Auctions

Can beverage alcohol manufacturers and licensees donate product for an Auction event if the proceeds are for charitable, educational, religious or community objects?

Alcohol can only be auctioned under the authority of a Special Occasion ("auction") Permit. Private citizens can donate beverage alcohol for these events, but manufacturers and licensees who have purchased alcohol under their liquor sales licence may not.

CANADA

Issuing of tax receipts for donated auction items

Date: June 9, 2003
Reference Number: CSP - A15
Policy Statement: A registered charity can issue an official donation receipt to the donor for the fair market value of property donated for a charity auction.

Generally, a registered charity cannot issue an official donation receipt to the persons who buy items at a charity auction. However, where the value of an item can be determined and is made known to all bidders in advance and where the amount paid for the item exceeds the posted value, a registered charity can issue an official donation receipt for the eligible amount of the gift (i.e., where the posted value of the item does not exceed 80% of the accepted bid.)

Issuing of tax receipts for works of art

Date: Spring 1999
Reference Number: Registered Charities Newsletter No. 8
The Department is aware that some charities are still receiving gifts of art and issuing receipts to the donor for an amount well above the fair market value of the art. Charities knowingly involved in such schemes are at risk of losing their charitable status on the grounds that they have issued receipts that contain false information. Other charities have been misled by appraisals in the possession of the donor which have led them to issue a tax receipt for an amount far greater than the amount they can obtain by selling the art work. Issuing receipts for an inflated amount may have an impact on charities because they will have problems meeting their disbursement quota the following year.

We advise charities to rely on common sense and to make sure they get an independent appraisal of the artwork by a competent professional. An independent appraiser is a person who is not financially connected to the donor, the charity, the art dealer, or the artist. For gifts worth less than $1,000, a qualified employee of the charity can appraise the value of the gift.

Donation receipts for Gift Certificates

Reference Number: CPS - 018
Effective Date: October 9, 2002
Purpose: This policy statement outlines the Directorate's policy on circumstances where official donation receipts for income tax purposes can be issued for gift certificates.
Statement: Registered charities can issue official donation receipts for income tax purposes for gift certificates.

Definitions:
gift certificate: a certificate having a stated monetary value that entitles the recipient to purchase goods and/or services in the establishment of the issuer
issuer: the person (individual, retailer, business) that creates a gift certificate redeemable for goods and/or services from that person

Implementation:

  1. This policy applies to registered charities that issue official donation receipts for gift certificates. Registered charities often accept gift certificates and use them in fundraising events, such as auctions and raffles.
  2. Registered charities can issue an official donation receipt when the donor
    • is not the issuer of the gift certificate; and
    • has obtained the gift certificate for valuable consideration either from the issuer or other third party
  3. Registered charities cannot issue official donation receipts for gift certificates they receive directly from the issuer.
  4. A charitable donation must involve a transfer of property1 of any kind, real or personal, corporeal or incorporeal, which includes rights. A right is a legally enforceable claim by one person against another. Whether the donation of a gift certificate constitutes a transfer of property, and more particularly a transfer of a right, depends on the particular circumstances.
  5. A gift certificate can be considered to be a promise from a merchant to supply goods and/or services in an amount specified on the face of the certificate. The Canada Customs and Revenue Agency (CCRA) has determined that a gift certificate constitutes property and a right, but only if the promise is enforceable, that is, only when the certificate was acquired for consideration.

    Scenarios
  6. When a person purchases, or otherwise obtains for consideration, a gift certificate, the terms of which permit its assignment, from an issuer and donates it to a charity, the purchaser/donor can receive an official donation receipt for the fair market value of the gift certificate. A receipt cannot be issued to the issuer of the gift certificate. It is the purchaser/donor who has made a donation of the gift certificate to the charity and not the issuer.
    In this scenario, the issuer of the gift certificate will realize income for the fair market value of the gift certificate.
  7. When the issuer donates a gift certificate directly to a charity, the issuer is not entitled to an official donation receipt at the time the donation is made. This concept is further developed in paragraph 9 below.In this scenario, the donation does not constitute a transfer of property and the issuer does not realize any income for having donated the gift certificate.
  8. When the issuer donates a gift certificate directly to a charity, the issuer may be eligible for an official donation receipt when the charity redeems the certificate for property. Therefore, to be eligible for a receipt, redemption of the certificate must form a transaction that would otherwise have constituted a gift. In other words, the charity must redeem the certificate for some form of property. A receipt cannot be issued if the charity redeems the gift certificate for a contribution of services2, such as time, skills or effort, because these are not property and do not qualify as charitable donations. A receipt issued by the charity should specify the nature of the property it received in exchange for the gift certificate.
    In this scenario, the issuer of the gift certificate will realize income equal to the difference between the value of the property gifted and the amount it paid for the property.
    When the issuer donates a gift certificate directly to a charity, and the charity transfers the certificate to a third party, for example, at an auction or a raffle, the redemption of the gift certificate by the third party does not entitle the issuer to a receipt. The honouring of the gift certificate by the retailer cannot transform the character of the original transfer of the gift certificate to the charity into a gift. Each transaction must be viewed independently in determining whether a gift has been made.
    In this scenario, no income is realized in respect of the donation and no donation deduction or tax credit can be claimed. However, where the issuer has donated and redeemed a gift certificate for property for the purpose of earning income in its business, a reasonable deduction may be available in respect of the cost of the property.

Value of a gift certificate

  1. The CCRA has determined that in some instances, the fair market value of a gift certificate may not be the equivalent of its face value. Factors to consider might be:
    1. the flexibility of the certificate - does the coupon expire after a certain time, is it usable only within a specific timeframe, does it restrict the purchaser to specific merchandise within the store, and
    2. its usefulness - does the retailer offer merchandise for the amount of the gift ertificate, or will the certificate account for a portion of regular selling property, for example, a $50 gift certificate at a car dealership.

Such factors may reduce the fair market value of a gift certificate. Where a charity is redeeming a gift certificate, donated by a retailer, the receipt should be issued for the fair market value of the property supplied.

Donation receipts - services

Release Date: March 29, 2000
Reference Number: CPC - 017
Subject: Official donation receipts - Whether gifts of services qualify as charitable donations
Purpose: To clarify the Directorate's policy regarding gifts of services.
Commentary:

  1. The Income Tax Act currently permits a registered charity to issue official donation receipts for income tax purposes for donations that legally qualify as gifts.
  2. Contributions of services, that is, of time, skills or efforts, are not property, and therefore they do not qualify as gifts for purposes of issuing official donation receipts. Accordingly, a charity cannot issue an official donation receipt for services rendered free of charge.
  3. A charity may issue an official donation receipt if a person provides a service to the charity, the charity pays for the service, and the person then returns the payment to the charity as a gift. In such circumstances, two transactions have taken place, the first being the provision of a service and the payment flowing therefrom, and the second being a gift proper.
  4. The parties should be advised to proceed by way of an exchange of cheques. This ensures the presence of an audit trail, as the donor must account for the taxable income that would be realized either as remuneration (in which case the charity may also be required to issue a T4 slip) or as business income.
  5. A charity should not issue an official donation receipt to a service-provider in exchange of an invoice marked "paid". While this procedure does establish an audit trail, it raises questions as to whether in fact any payment has been transferred from the charity to the service-provider which in turn is being gifted back to the charity.

How do you establish the value of gifts-in-kind?

Release Date: Spring 2000
Reference Number: Registered Charities Newsletter No. 9

Gifts-in-kind are non-cash gifts. They include gifts of land, vehicles, shares, and works of art. Unlike a cash gift, the value of a gift-in-kind is not immediately apparent. The charity should have the gift appraised before it can issue a tax receipt to the donor.
In its pamphlet Gifts and Income Tax, the Canada Customs and Revenue Agency recommends that the appraiser should not be associated with either the donor or the charity receiving the gift. However, if a member of the charity's staff is familiar with the type of property in question, he or she could perform the appraisal if:

The Canada Customs and Revenue Agency cautions charities to be wary of appraisals produced by a donor who has not consulted with the charity, especially if:

Donation Receipts - From inventory

Release Date: March 29, 2000
Reference Number: CPC - 018
Subject: Official donation receipts - Whether gifts out of inventory qualify as charitable donations
Purpose: To clarify the Directorate's policy regarding gifts out of inventory.
Commentary:

  1. A registered charity can issue an official donation receipt to a business for the market value of a gift out of inventory.
  2. The charity's responsibilities are:
    1. determining that it has in fact received a gift;
    2. determining the value of the gift.
  3. If the transaction results in a material benefit to the business, such as promotion or advertising, there has been no gift at law, and the charity should not issue an official donation receipt.
  4. It is the CCRA's responsibility to ensure that businesses comply with the provisions of the Income Tax Act, not the charity's. If asked, the charity may advise a business of the tax implications as follows:
    1. The business can, of course, deduct the cost of acquiring or producing the item given to the charity from its income.
    2. If the business does make a true gift out of inventory, it must add the fair market value of the item to its income per subparagraph 69(1)(b)(ii) of the Income Tax Act, and then claim a charitable tax deduction.
    3. If the business obtains a material benefit from the transaction, it can probably write off the cost as a business expense.
  5. The following example explains the tax consequences for a business where a gift is made out of inventory.

Calculation of taxable income:

Sale of bread $50,000
Plus the value of bread donated to charity + 1,000
Income $51,000
Less production costs 25,500
Net income $25,500
Less tax deduction for donated bread - 1,000
Taxable income $24,500

Donation receipts - Buyers of auction items

December 24, 2002

Generally, it is CCRA's position that there will not be an eligible amount with respect to items obtained at charity auctions on the basis that the bid determines the value of the various items put up for auction.

However, where the value of an item is clearly otherwise ascertainable (e.g., there is a retail price for the item) and made known to all bidders in advance, an eligible amount would be present where the amount bid is in excess of the posted value. Where donative intent can be established, which may be the case where the posted value of the item does not exceed 80% of the accepted bid, a tax receipt may be issued for the eligible amount.

Example

The retailer donating the bike will be entitled to receive a tax receipt for $400. If this represents a gift on the part of the retailer, the retailer will have revenue of $400 pursuant to section 69 and a donation deduction of $400. If the bike cost the retailer $250, the result would be a profit of $150 for tax purposes.

(Therefore an item must sell for 25% more than it's market value)It is the CCRA's opinion that with regard to certain personal items such as, but not limited to, the jersey of a hockey player, the right to play golf with a particular person, and the right to dine with a particular person, the value of the item will be the amount of the bid such that there will not be an eligible amount.

Determining the value of benefits received by guests for tax receipt purposes

Reference Number: Income Tax Technical News No. 26
Effective Date: December 24, 2002

The guidelines below have general application to all fund raising events or activities:

Determining the value of a meal for tax receipt purposes

Reference Number: Income Tax Technical News No. 26
Effective Date: December 24, 2002

The value of a comparable meal provided by a comparable facility will have to be ascertained. If the event is held at a restaurant, then the price the restaurant would charge a regular customer would be the comparable value. In this regard, it is acceptable to take into account group or banquet rates.

Generally, the right to participate in an auction to be held at the dinner will not be viewed as constituting an advantage.

Example

Determination of eligible amount:

Ticket price $200
Less: meal $100
Eligible amount $100

As a result of applying the de minimis threshold, the value of the door prizes and the complimentary items received by a donor will not be viewed as an advantage in determining the eligible amount, since the total value of such prizes and items is $17 per donor, which is less than the lesser of 10% of $200 ($20) and $75.

In this case, the amount of the advantage is $100, which is not more than 80% of the ticket price ($160). Accordingly, a tax receipt may be issued for the eligible amount.

Determining whether a guest can be tax receipted for an item purchased at an auction

Reference Number: Income Tax Technical News No. 26
Effective Date: December 24, 2002

Generally, it is CCRA's position that there will not be an eligible amount with respect to items obtained at charity auctions on the basis that the bid determines the value of the various items put up for auction.

However, where the value of an item is clearly otherwise ascertainable (e.g., there is a retail price for the item) and made known to all bidders in advance, an eligible amount would be present where the amount bid is in excess of the posted value. Where donative intent can be established, which may be the case where the posted value of the item does not exceed 80% of the accepted bid, a tax receipt may be issued for the eligible amount.

Example

The retailer donating the bike will be entitled to receive a tax receipt for $400. If this represents a gift on the part of the retailer, the retailer will have revenue of $400 pursuant to section 69 and a donation deduction of $400. If the bike cost the retailer $250, the result would be a profit of $150 for tax purposes. Footnote 4
br> It is the CCRA's opinion that with regard to certain personal items such as, but not limited to, the jersey of a hockey player, the right to play golf with a particular person, and the right to dine with a particular person, the value of the item will be the amount of the bid such that there will not be an eligible amount.

Determining the tax receipt amount for a concert or sporting event

Reference Number: Income Tax Technical News No. 26
Effective Date: December 24, 2002

While a particular event may be a charity fund raiser and all or a portion of the proceeds designated in favour of a charity, there will need to be clear evidence that the ticket price is in excess of the usual and current ticket price to allow a finding that there is an eligible amount. Where the amount of the advantage (including the usual and current ticket price) is 80% or less of the actual ticket price, a tax receipt may be issued for the difference. If there is no reasonably comparable event, then no portion of the ticket price can be viewed as an eligible amount.

Example

Determination of eligible amount:

Actual ticket price $200
Less: Comparable non-charity ticket price $100
Complimentary items $ 35
Advantage $135
Eligibe amount $ 65

The value of the complimentary items is $35, which exceeds the lesser of 10% of $200 ($20) and $75. Accordingly, the complimentary items are regarded as an advantage and must be taken into account in determining the eligible amount.

In this case, the amount of the advantage is $135. Since this amount does not exceed 80% of the actual ticket price ($160), a tax receipt may be issued for the eligible amount ($65).

Determining the tax receipt amount for a golf tournament

Reference Number: Income Tax Technical News No. 26
Effective Date: December 24, 2002

The following indicates the CCRA's view in determining the value of the various components that may be present at a fund raising golf tournament for the purpose of determining the amount of the advantage received by a participant.

1. Green fees

2. Cart rental

3. Meals

4. Complimentary items

5. Door and achievement prizes

6. Hole-in-one prize

7. Raffle tickets

Example

Determination of eligible amount

Participation fee $200
Less: Green fee $50
Cart rental $20
Complimentary items/door and achievement prizes $35
Food and beverage $30
Hole-in-one prize $ 0
Advantage $135
Eligible amount (non-members) $ 65

The total value of the complimentary items and the door and achievement prizes of $35 to each participant exceeds the lesser of 10% of the participation fee of $200 ($20) and $75. Accordingly, such items constitute an advantage in determining the eligible amount.

In the case of non-members, the amount of the advantage is $135 and a tax receipt may be issued for the eligible amount of $65. If the amount of the advantage exceeded 80% of the participation fee ($160), a tax receipt could not be issued due to the absence of donative intent.
In the case of members, the eligible amount would be increased to $115 by the green fee that they would otherwise not have been required to pay.

If the golf course normally offers group rates this would be taken into account. In the above example, if the course offers a reduced green fee of $40 for tournaments where there are more than 50 participants, then $40 instead of $50 would be used for non-member green fees, which would result in an eligible amount of $75.

Issuing of tax receipts at Fundraising golf tournaments

Reference Number: Registered Charities Newsletter No. 7
Effective Date: Summer 1998

The Department considers fundraising golf tournaments as "like events", within the meaning of Interpretation Bulletin IT-110R3, Gifts and Official Donation Receipts. This means a charity can issue a tax receipt for the difference between the price of the admission ticket for the tournament, and the fair market value of the golf game plus any other entertainment and meals the player receives.

However, "like events" do not include events where the ticket purchaser gains the right to win a prize of more than a nominal amount For example, a charity cannot issue tax receipts when a fundraising golf tournament offers players the potential prize of a car for a hole-in-one.

Issuing of a tax receipt to reimburse volunteers

Release Date: December 3, 1997
Reference Number: CPC - 012
Subject: Out of pocket expenses - Whether an official donation receipt can be issued in place of a cheque to reimburse volunteers for expenses incurred on behalf of the charity
Purpose: To clarify the Directorate's policy regarding expenses incurred by volunteers on behalf of a registered charity.

Commentary:

  1. A charity cannot simply issue an official donation receipt to a volunteer for the amount of the expenses, in lieu of reimbursing the expenses.
  2. A charity can reimburse a volunteer for the expenses incurred on behalf of the charity and later accept the return of the payment as a gift, provided that the amount is returned voluntarily.
  3. The parties are encouraged to proceed by way of an exchange of cheques, that is, the charity issues a cheque to the volunteer covering the costs incurred, and the volunteer then writes a cheque to the charity for an equivalent or lesser amount. By using the cheque-exchange method, a charity will have proper financial records justifying the receipt it issues to the volunteer and the volunteer can document that he or she has transferred property to the charity.
  4. A charity should also have a policy in place on reimbursing volunteers. The policy should specify both the type of expenditures the charity is prepared to repay (e.g., for materials purchased for the use on a charitable activity or for reasonable accommodation if the volunteer is travelling on the charity's business), and appropriate procedures to document the volunteers' payments, such as submitting credit-card slips. Such a policy enables the charity to demonstrate it is controlling the use of its resources for charitable purposes.

Calculating a tax receipt for tickets to fund-raising dinners, balls, concerts, shows, or like events

Reference Number: RC4142(E) Rev. 02

Usually, an amount you pay to a charity will not be a gift if you, or someone you name, receives a benefit (other than a benefit of nominal value) in return for the payment. However, in recognition of certain widely accepted fund-raising practices, the following situation is an exception to this rule.

When a registered charity sells tickets to a fund-raising dinner, ball, concert, show, or like event, we consider the difference between the ticket price and the fair market value of the food or entertainment the charity provides to be a gift.

A like event is an event that provides services or consumable goods that are bought to be used on a particular date. These services or goods will have no resale value if the purchaser does not use them on that date. For example, a concert would be a like event but an auction would not. Goods bought at an auction continue to have value after the date of the auction.

To calculate the gift part of the ticket to the fund-raising event, the charity can consider that it has received two payments:

Example:

A hospital foundation sells tickets for $200 each to a fund-raising dinner-dance. The cost to the foundation of putting on the event is $45 per person.

The foundation calculates the fair market value of the food and entertainment provided to persons attending the event to be $75.

The gift to the foundation is the difference between the $200 ticket price and the $75 value of the benefit received. The actual cost to the foundation, $45 per person, is not a factor in calculating the part of the ticket price that is a gift.

Therefore, the foundation can issue a tax receipt for $125 to each ticket purchaser.

Issuing of tax receipts at Fundraising auctions

Reference Number: Registered Charities Newsletter No. 7
Effective Date: Summer 1998

All gifts donated for a charity auction may be receipted if their value can be determined. The amount indicated on the receipt will be the fair market value of the gift on the date the charity received it. A charity cannot issue tax receipts to people who buy items at a charity auction, (Editor: unless the purchase price exceeds the value of the item by a % amount - see updated info). This is because they are receiving something in return, and therefore, there is no gift.

An auction is not a "like event". If a charity charges admission to its auction, it cannot issue a receipt for any part of the admission price. Just as a "like event" that is combined with a chance to win a prize or a draw is not considered a "like event", similarly a "like event" that is combined with an auction is also not considered a "like event". A charity cannot issue a receipt for any part of the admission charged for entry to the combined event.

However, a charity can hold an auction and a "like event", such as a dinner, as separate events, even if they are held on the same evening, and at the same place. In this case, the charity should sell separate tickets to the two events, and the public can buy tickets for either one of the events or for both. Although the charity cannot give a receipt to those buying a ticket to the auction, it can issue a receipt for part of the purchase price of the dinner ticket.

What about a dinner, for which tickets are sold, that is combined with an auction to which entry is free? Such an arrangement always raises questions about whether or not there is one event, or two events. If people think they have to buy a dinner ticket in order to attend the auction, the Department will view the dinner-and-auction as a single combined event for which the charity should not issue a receipt.

Issuing of tax receipts for events that include a draw or raffle

Reference Number: RC4142(E) Rev. 02

If the price of admission to a fund-raising dinner, ball, concert, show, or like event includes a lottery or draw for prizes of more than nominal value, then the charity cannot issue a receipt for any part of the admission price.

Example:

A hospital foundation sells tickets for $200 each to its fund-raising dinner. The ticket to the dinner also enters you in the foundation's lottery to win a new car. The foundation cannot issue you a tax receipt for any part of the $200 you paid to attend the dinner.

This situation can be avoided if the charity sells tickets for a lottery or draw separately from the admission to the fund-raising event.

For example, if a person can buy tickets for a fund-raising dinner without buying lottery tickets, then the charity can issue an official tax receipt for the part of the admission ticket that exceeds the fair market value of the entertainment or meal provided.

Collection of BC Provincial Sales Tax on Auction Items and Raffle Tickets

Release Date: October 2004
Reference Number: Bulletin SST047

Sales and rentals of other tangible personal property are subject to tax at 7% of the purchase or rental price unless the items sold or rented are specifically exempted under the Act. See exemption list in separate PDF.

When a car, television, or other merchandise is raffled, tax does not apply to the sale of tickets.

The person providing the prize must pay the tax. The person who wins the prize is not required to pay taxes on the value of the value of the prize.

Collection of BC Provincial Liquor Tax on Auction Items

Release Date: March 2002
Reference Number: Bulletin 016

The province's social service tax (editor: of 10% for liquor) applies to prices before the addition of the federal government's GST. This means that the GST is not included in the price on which PST is calculated. Both taxes are calculated on the same pre-tax sale price.

Collection of GST on goods and services sold by a charity

Release Date: Unknown
Reference Number: RC4082(E) Rev. 2

Most goods and services you sell or provide for a fund-raising activity, that are not covered under the exemptions described above,

Exemptions for charities

The following are examples of goods and services that are exempt when charities provide them:

are exempt unless:

Examples of sales that are exempt under this exemption include:

Examples of supplies this exemption does not cover and that you will have to collect tax on, if you are a GST/HST registrant, include:

Collection of GST on tickets to a fund raising dinner sold by a charity

Release Date: unknown
Reference Number: RC4082(E) Rev. 2

The full amount you charge for admission to a fund-raising dinner, ball, concert, or similar event is exempt if part of the admission qualifies as a charitable donation for income tax purposes.

Example: You sell tickets to a fund-raising dinner for $100 but $75 of the ticket price qualifies as a charitable donation for income tax purposes. You do not charge GST/HST on any part of the admission.

Collection of GST on sponsorship sold by a charity

Release Date: unknown
Reference Number: RC4082(E) Rev. 2

Similar to donations and grants, sponsorships may not be subject to GST/HST, depending on the nature and the extent of the promotional benefits you give to the sponsor. These are examples of sponsorships that are not taxable:

We do not consider the payments you receive from a sponsor in either of these circumstances to be payment for a good or service. As a result, the payments are not subject to GST/HST.
If the payment by a sponsor is made primarily (more than 50%) to obtain advertising on television or radio, or in a newspaper, magazine, or other publication your charity issues periodically, then we do not consider the payment to be a sponsorship, but rather a payment for advertising services. Advertising services are usually subject to GST/HST. However, they are exempt when a charity provides them.