4 June 2002 External T.I. 2002-0117915 - gifts in kind to charity

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CCRA.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.

Principal Issues:

Can a tax receipt be issued for gifts of baked goods (cakes, pies etc.), or baking supplies? What is the appropriate amount to receipt? Is there any distinction between a "gift" and a "donation"?

Position:

Baked good and baking supplies are property that may be gifted as gifts in kind. The amount to be receipted is the fair market value of the property gifted at the time of the gift. There is no distinction, for tax purposes, between a gift and a donation.

Reasons:

A gift is a voluntary transfer of property for which the donor receives no benefit in return. Gifts, pies, baking supplies etc. are property and therefore may be gifted. Section 3501 of the Income Tax Regulations requires that gifts in kind be receipted at fair market value.

XXXXXXXXXX 								2002-011791
R. Maley
June 4, 2002

Dear XXXXXXXXXX:

Re: Charitable Donations of Baked Goods

This is in reply to your letter of September 25, 2001 to the CCRA Client Services Directorate. You are seeking information about the proper treatment, for tax purposes, of baked goods donated to one's church. We apologize for the delay in responding to you.

In your letter, you have asked for the following information. First, you would like to know whether the cost of baked goods donated to one's church may be deducted in computing income tax. Second, you have asked whether the cost of related supplies such as cups, plates, etc., that are donated to one's church may be receipted as charitable donations. In each case, you have asked for comments to assist in establishing the appropriate amount to deduct or receipt. Third, you have also asked whether production of a receipt issued by the Treasurer of the church would be sufficient to claim a charitable donation tax credit. Finally, you also ask if there is any distinction, for tax purposes, between the concept of a "gift" and a "donation".

We can provide you with some general comments, which we trust will be helpful to you. Please keep in mind, however, that written confirmation of the tax implications of a particular proposed transaction can be provided only in the context of an advance tax ruling request, as explained in Information Circular 70-6R4 (copy attached for your information). Should your situation involve a specific taxpayer and a completed transaction, you should submit all relevant facts and documentation to the appropriate Tax Services Office for their views.

A gift, for tax purposes, is a voluntary transfer of money or property for which the donor receives nothing of value in return. A gift does not include the provision of one's services. There is no distinction between a gift and a donation for tax purposes.

Property gifted to one's church would constitute a charitable gift for tax purposes if the church is a registered charity. Pursuant to subsection 118.1(2) of the Income Tax Act ("the Act"), individuals may claim a tax credit for their charitable gifts made in the year only if they have an official receipt for the gift. An official receipt is a receipt that satisfies the requirements set out in sections 3501 and 3502 of the Income Tax Regulations.

It is our view that gifts of cakes, pies or baking supplies would constitute gifts in kind for which a registered charity could issue a tax receipt. A gift in kind is a gift of property other than cash. In deciding whether or not to issue receipts for such gifts, a charity may consider the administrative costs in so doing, and the impact that the receipts will have upon its disbursement quota. Simply put, a charity's disbursement quota is an amount, computed by reference to the quantum of its receipted gifts in the preceding year, that the charity must expend in the year in carrying on its charitable activities or in making gifts to qualified donees. For example, if a charity agrees to issue a tax receipt for $5.00 in respect of a gift of a pie, the charity's disbursement obligation for the following year would increase by $4.00.

Where a charity issues a receipt in respect of a gift in kind, subparagraph 3501(1.1)(h)(ii) of the Income Tax Regulations requires that the amount of the receipt be the fair market value of the property at the time that the gift was made. Generally, "fair market value" means the highest price, expressed in dollars, that the property would bring if sold in an open market to an independent buyer. A property's fair market value may be more, or less, than the costs incurred to acquire or produce it.

Subsection 69(1) of the Act further provides that any person who makes a gift is considered to have received "proceeds of disposition" equal to the fair market value of the gift. This means that, for tax purposes, you are viewed as having sold the property and received fair market value payment. The result is that, if the fair market value is higher than the cost of the property, you will have a gain equal to the difference that must be included in computing your income for tax purposes.

We have included, for your information, a copy of Interpretation Bulletin IT-297R2, entitled, "Gifts in Kind to Charity and Others". If you should have any further questions about the information provided, you are welcome to contact Robin Maley of the Rulings Directorate (1-613-957-9226) for clarification.

Yours truly,

F. Lee Workman
Manager
Financial Institutions Section
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch