CRA Rules – Do They Need Updating?

CRA Rules – Do They Need Updating?

As many of you (Canadian readers) may know, the CRA (Canada Revenue Agency) distinguishes between philanthropy and sponsorship. Here is a simple interpretation.

A gift or donation occurs when a person or a company gives with no expectation of anything in return. This means that, if a company or person gives an organization $100,000 (or any amount for that matter) and they receive nothing in return or no more than 10% of the total gift to an amount not exceeding $100, it is considered a gift or donation and is eligible for a charitable tax receipt if the recipient organization is a registered Canadian charity.

If the company receives something of value (note I said “company” and not “company or individual”—I will get to that in a moment) such as signage, naming rights, access, or whatever—true marketing assets, then it is no longer a gift but a business transaction in which the company paid the charity for marketing exposure. (Note: If the sponsor gave $100,000 and the value of the exposure—see why it is important to know that value—was only $75,000, then a charitable tax receipt can be provided to the company for the difference of $25,000.)

Specifically, around naming rights and otherwise, if a company puts its name on a building such as a hospital wing, arena, theatre, etc., it is considered a commercial naming right. It is not a gift, but rather a sponsorship. But if an individual puts their name on that same building for the same amount, it is considered a gift and the individual can receive a charitable tax receipt for the full amount. According to CRA, the reason for that is because the individual has nothing to gain from the exposure of their name. Thus, it is not marketing, but a gift.

That philosophy has been in place for a very long time. But the world has changed dramatically and that’s why I ask (OK, a reader came up with this question, not me, and I am providing voice to it) if maybe it is time to revisit this scenario?

With so many social media influencers out there now, many operating simply by their names (or that is the focal point of their business), doesn’t this change the playing field? What if a social media influencer of personal name fame decides to give a university $1 million and has a building named after them? Would they be eligible for a charitable tax receipt (of which they could claim about 17% as a tax credit), or would/should it be deemed a marketing expense (because they really gave the money to profile their name, and therefore, it is a business expense and they should get a marketing receipt for the investment, 100% of which they write off as an operating expense—marketing—before the calculation of profit or taxes)?

I’m not sure I have an answer, but I have my thoughts on the scenario. I would pose the question to you and am interested in knowing what you think. Should CRA revisit these rules based on influencers or leave it status quo and why?

I look forward to your thoughts and insights.

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