Registered charities can offer donors receipts to reduce the amount of tax they pay. Unregistered groups can't, of course.

Not having tax-deductible status may not hurt donations, however. Many individuals happily contribute to causes they care for without concern for a tax deduction. Even when they can, many don't claim their deductions. Corporations can take their tax deductions without official receipts, as explained below. Foundations can only give to registered charities, however.

Here are the basic rules:

¶ Gifts of money are tax deductible, whether made in cash, by cheques, via credit card or money order.
¶ Pledges are not deductible until they are paid.
¶ Gifts of goods are tax deductible.
¶ Gifts of services are not deductible. It is legal to exchange cheques to solve this problem.

Receipts for in-kind donations of services

Services are never tax-deductible; only goods are. A gourmet cook, computer- programmer, lawyer, accountant, or painter may offer their services. These are services and labour. You cannot give them a tax-deductible receipt.

You can, however legally exchange cheques. This requires that you pay for the service. Then the individual donates the money to your charity, and you issue a tax-deduction receipt for the gift.

Unfortunately, this is seldom worthwhile for the donors. They must declare the money you paid for the service as part of their taxable income. This usually offsets the advantage of the deduction.

Receipts for in-kind donations of goods

If someone gives you goods, you may give a tax receipt for their donation. It is not necessary to exchange cheques first. There are a few exceptions for used goods of little value.

On the tax receipt, show that it was an in-kind donation, and show the 'fair market value'. That's what the item usually sells for. You may need to get outside estimates to confirm the value.

For example, if someone gives you a photocopy machine that sells everywhere for $600, you can give them an official charitable tax receipt marked “Gift in kind $600.” It doesn't matter how much they paid for the machine, as long as it is clearly worth $600. If you are not sure how much it is worth, establish the 'fair market value' by asking knowledgeable people to evaluate it. Get a written estimate for valuable items.

Corporate donations

When companies make a contribution, they do not need a charitable tax-deduction receipt to write off the gift. They can claim a tax deduction for it as a cost of business, usually as a public-relations or promotional expense. This applies equally to gifts of cash, goods, and services.

That's not to say you can't issue a receipt, only that it is not necessary for Revenue Canada purposes. The company may wish a receipt as an acknowledgement, but doesn't need an official charitable tax receipt for the government. (In the case of services, of course, an official tax receipt cannot be issued.) This is important for groups that are not set up as government-registered charities.

A business can't take two tax deductions for the same expense. If they've already written it off as a cost of business, they can't write it off again as a charitable gift. It is not the charity's responsibility to enforce the rule - you can issue the receipt. The business must decide whether to use it.

What is tax-deductible at auctions?

Revenue Canada has special regulations about auctions which registered charities must follow.

The 'fair market value' of goods given to a charity to auction off is the amount that the donor would have received on the open market at the time he made the gift.

For example, Mrs X gives you a painting for which she paid $1,000. She has the receipts to prove it. You give her a receipt for $1,000. At the auction, perhaps someone will buy it for $5,000. Perhaps they will buy it for $500. Either way, Mrs X is 'protected' from a change in the fair market value because she gave the painting in good faith as a gift worth $1,000. Any subsequent transaction between the charity and its customers is irrelevant.

Receipts for items purchased

People who buy an item at a charity auction are not entitled to a tax receipt. They have made a purchase, not a donation.

This applies even if they pay excess value. For example, Mr Z may pay the charity $1500 for an item that normally sells for $1000. He cannot claim the extra $500 as a tax- deductible gift, according to Revenue Canada.

When a company purchases an item at an auction, it is tax-deductible, just like any other corporate purchase. They may deduct it as a promotional expense. If they use the materials for business, it's a deduction for acquisition of materials. Art work can even be deducted as a legitimate decorating cost, if the art is kept on the business's premises, though probably not if it's kept in someone's home, of course. This suggests that auctions may produce higher prices when the bidders are buying for their businesses.

Purchase of tickets

How much of the admission price to an event is deductible?

a) only the excess over fair market value is deductible; or

b) only the amount above what the charity actually paid is deductible.

Here are the three variations:

The normal case: dinners ordinarily sell for $25 each, and the charity pays $25. It charges $35. The deductible portion is $10.

The charity gets a bargain: Dinner ordinarily sells for $35 each,, and the charity pays $25. It charges $35. The deductible portion is nothing. The fair market value is $35, with no allowance made for the saving of the charity.

The charity loses money: Dinner ordinarily sells for $25 each, and the charity pays $50 because not enough tickets sold. It charges $35. The deductible portion is nothing.

For these reasons, the amount that is tax-deductible cannot actually be calculated until the event is over.

Raffle tickets

The amount someone pays for a raffle ticket is not deductible as a charitable donation. Revenue Canada considers draws, lotteries and raffle tickets as purchasing a chance to win, not as a gift.

The price of the raffle ticket is not relevant. The rule applies equally to $1 tickets and to $100 tickets. The fact that a major portion of the ticket price is used to benefit the charity's projects does not make the ticket-price deductible. The only exception is if the prize to be won is of negligible value.

This has serious implications if you include a draw as part of an event. It could ruin plans to have a portion of the ticket price deductible. One solution may be to make the draw free, not conditional on purchasing admission.

Revenue Canada toll-free information service

For more information, call Revenue Canada's toll-free charity regulations information service, at 1-800-267-2384. Ask for copies of Interpretation Bulletin IT 297R and IT 110R2.

Other laws and regulations

Many provinces and municipalities also have laws affecting non-profit organizations. Be sure to check with local authorities before launching a special event. These most frequently affect:

• lotteries, raffles and draws,
• liquor regulations,
• permits for use of public or private places,
• parade permits,
• restrictions on telephone canvassing,
• maximum amount of proceeds that can be used for administration and fundraising costs.

Regulations vary from one community to the next. Neighbouring communities may have regulations that contradict each other. Be especially careful if you are planning an event that crosses several jurisdictions.

Insurance

It's worth the cost to insure your event against eventualities such as:

• injury to someone attending your event, either on your site or after leaving, whether as a result of accident or of alcohol consumption - especially if you are selling the alcohol
• damage to the premises where the event is held
• theft of property during an event.

Some groups have also taken out insurance to compensate the charity if the event has to be cancelled because of bad weather, or the failure of the entertainment to appear. This can be expensive, but may be worthwhile if the event itself is costly.

In a light-hearted mood, some charities also offer “hole-in-one insurance for golfers”. This pays up to a million dollars to the golfer who hits a hole in one — with a witness! The charity charges people to participate in the golf tournament.

Contact:

Mancil Davis
National Hole-In-One Association
730 Campbell Center
8350 North Central Expressway
Dallas, Texas 75206-1679

Toll free phone in Canada and U.S. (800) 527-6944

Your first special event is not to make money. It's to make mistakes! The second time is for money.

No matter how experienced you are in running special events, each different type is unique. It takes time and money to learn how to do it well. Be sure your organization can repeat the successes.

If you're only going to do it once, be sure it makes a lot of money that one time. Most ideas don't. They improve with age. They become part of the community's traditions. So be sure to follow these rules:

¶ Keep good records

• Who gave how much?
• What were the sources of free goods and services?
• Who displayed volunteer talents (or problems)?
• Who should you ask again?
• How much time did it really take?
• What were the hidden costs?
• What were the problems to avoid?

¶ Train new leaders and retrain old ones

• Select an understudy a year in advance.
• Allow people to retire before they burn Out.
• Keep retirees as advisors.

¶ Build on a winner

• Don't constantly look for new ideas... improve the best of the past.
• Research ideas that are new to you carefully.
• Don't guess about how it works, ask others who have done it before.
• Share your information with 'competitors'. Everyone wins.

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The Event-Ability Quiz

How well does your special event plan stack up? Try this simple self-scoring quiz. While it's not a scientific system, it is a fun way to estimate how successful your event might be.

The Event-Ability Quiz

© 1988 Ken Wyman

How to rate yourself:

If your score is...