Canadian definition of products for donation purposes
September 5, 2009 2:12 PM Subscribe
Canada Donation Filter: Can you donate a productized service and have it count as an in-kind donation to a charity?
Services are exempt from in-kind donations under CRA rules. But what about the donation of a tangible product? For example, what if a freelance writer provided a tangible product, such as a finished article in Word format? This is not a service, since it's an actual "thing". Or what if a consultant donated a report and not the services involved in developing that report? Or if a graphic designer donated a newsletter template or finished newsletter? These things could be sold on a website -- lots of consultants sell templates, ebooks, reports and such on demand.
It's unclear to me how these products would be treated under tax laws. For example, if you donate an ebook, which is a product, would that be eligible?
When I read CRA definitions, they seem not to get into how they define products, other than for capital or personal use. And certainly something like an oil change or haircut is a service and not a product. And CRA would not want volunteers to start writing off all the time they spend working in hospitals, at ticket booths and so on. But I am not talking about volunteer time. I'm talking about donation of an actual finish product. Is a report or ebook like a handmade wooden table, if there is a market value for the finished product?
When I worked for a charity some years ago, I did note that my boss did some sort of write off for donations of services by using some sort of definition of products. But I have no idea whether that was legit.
Note: If you're in the US, please note that your tax laws are different. I understand that, in the US, services can be donated at fair market value. But, in Canada, we can only donate products.
Services are exempt from in-kind donations under CRA rules. But what about the donation of a tangible product? For example, what if a freelance writer provided a tangible product, such as a finished article in Word format? This is not a service, since it's an actual "thing". Or what if a consultant donated a report and not the services involved in developing that report? Or if a graphic designer donated a newsletter template or finished newsletter? These things could be sold on a website -- lots of consultants sell templates, ebooks, reports and such on demand.
It's unclear to me how these products would be treated under tax laws. For example, if you donate an ebook, which is a product, would that be eligible?
When I read CRA definitions, they seem not to get into how they define products, other than for capital or personal use. And certainly something like an oil change or haircut is a service and not a product. And CRA would not want volunteers to start writing off all the time they spend working in hospitals, at ticket booths and so on. But I am not talking about volunteer time. I'm talking about donation of an actual finish product. Is a report or ebook like a handmade wooden table, if there is a market value for the finished product?
When I worked for a charity some years ago, I did note that my boss did some sort of write off for donations of services by using some sort of definition of products. But I have no idea whether that was legit.
Note: If you're in the US, please note that your tax laws are different. I understand that, in the US, services can be donated at fair market value. But, in Canada, we can only donate products.
Our usual process for dealing with donations is to have the provider invoice us for the total cost. We then issue a check in that amount; the person doing the donation reciprocates with a check for the same amount; and we issue a tax receipt.
This way, there is no question on the part of our auditors or the CRA about the value of the what was received - it is plainly invoiced and listed. We got to this process on the basis of advice from our auditors as the easiest method of ensuring that there is no disagreement about the value of a donation - the donation actually comes in on the books as cash, which makes it very clear for everyone involved.
posted by never used baby shoes at 3:46 PM on September 5, 2009 [1 favorite]
This way, there is no question on the part of our auditors or the CRA about the value of the what was received - it is plainly invoiced and listed. We got to this process on the basis of advice from our auditors as the easiest method of ensuring that there is no disagreement about the value of a donation - the donation actually comes in on the books as cash, which makes it very clear for everyone involved.
posted by never used baby shoes at 3:46 PM on September 5, 2009 [1 favorite]
Consult a tax lawyer.
posted by dirtynumbangelboy at 6:26 AM on September 6, 2009
posted by dirtynumbangelboy at 6:26 AM on September 6, 2009
I dunno - I know that I am allowed to donate software, but we actually package it. Somehow we are also allowed 40 hours per year to donate our time to a charitable/volunteer activity - I'm certain that the company writes that off somehow (I'd be shocked if it didn't).
posted by jkaczor at 11:00 AM on September 6, 2009
posted by jkaczor at 11:00 AM on September 6, 2009
Response by poster: Hmmm. But what if you simply charged the same rate for a custom product -- the same rate you charged for other clients with products with similar products? If the rate for a finished article is $1 per word and it includes certain features, wouldn't it thus become a product? This is where I get confused.
Neverusedbabyshoes, I like your idea. But if you make a matching donation, I wonder if you'd run into a problem where they have to take the money out of one budget but then the donation goes into another.
JKaczor, your company does that as an employee benefit. I've written extensively on time donation among employers and there does not appear to be a write off. However, it has significant benefits for recruitment and retention and even productivity.
posted by acoutu at 9:18 PM on September 8, 2009
Neverusedbabyshoes, I like your idea. But if you make a matching donation, I wonder if you'd run into a problem where they have to take the money out of one budget but then the donation goes into another.
JKaczor, your company does that as an employee benefit. I've written extensively on time donation among employers and there does not appear to be a write off. However, it has significant benefits for recruitment and retention and even productivity.
posted by acoutu at 9:18 PM on September 8, 2009
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If you're donating a Word document, even the though the hard copy is an actual product, you're indeed donating a service. The value of the actual hardcopy is worth about the price of the paper its printed on.
Now, if you could demonstrate that you have sold copies of this Word document to other clients or buyers, then you could demonstrate to CRA that the Word document has a specific market value.
However, if you're just attempting to assign an arbitrary cost or value to a one-off PDF or Word document, then how can you demonstrate how you came to that value?
You could give someone a rock and say its value is $50K or whatever, and use that as a tax deduction.
posted by KokuRyu at 2:24 PM on September 5, 2009