August 6, 2020
Donating Business Services to Charity – How to Get A Receipt
How to Receive A Donation Receipt for Services Provided
Donating business services to charity may sound like a logical and simple process. After all, it is common that a business may want to provide its services to a registered charity in exchange for a charitable receipt. The Canada Revenue Agency (“CRA”) however, has put in place some specific rules and limitations on this.
Gifts of Services
The CRA permits a registered charity to issue a donation receipt for income tax purposes for items that qualify as gifts. Currently the definition of a gift does not include the contribution of services, e.g. legal, consulting, financial and accounting services to name a few. As a result, a charity is unable to provide a donation receipt for tax purposes for services that were provided “free of charge” by a business.
There is a way around this “Gift of Services” issue when donating business services to charity, which is commonly referred to as a cheque swap.
A cheque swap is when cheques (or payments) are exchanged between the charity and the business, that is, when the service is provided to the charity, the business invoices the charity for the service performed.
The charity then pays for the service in one transaction and the business makes a donation back to the charity in the amount of the payment received in another transaction.
It’s as simple as that, the charity and business have now swapped cheques. A charity should not issue a donation receipt for an invoice marked paid. Our Manning Elliott tax advisors recommend that the swap of cheques occur as this provides an audit trail should CRA ever review the donation transaction.
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The above content is believed to be accurate as of the date of posting. Tax laws are complex and are subject to frequent changes. Professional advice should be sought before implementing any tax planning. Manning Elliott LLP cannot accept any liability for the tax consequences that may result from acting based on the information contained therein.