What is the difference between sponsorship and donations

A charity is certainly allowed to thank its donors. If a business receives the same level of recognition as all other donors, with no special treatment, and the recognition is nominal, this usually constitutes a simple acknowledgment, and a receipt may be issued for the full amount of the donation. If a business receives special recognition for its donation, or if it receives more than nominal recognition for example, banners, advertising of products , this usually constitutes sponsorship.

It is difficult, if not impossible to establish a fair market value for sponsorship, and when the fair market value cannot be determined, a receipt cannot be issued. Receipting by Canadian Registered Charities. Here is an announcement from CRA relating to new webinars dealing with gifting and receipting on November 16 and 17, Charities information…. The Canadian Charity Law Association is delivering some upcoming webinars. Registration is free but space is limited.

Topics are subject to change. Charities should therefore ensure that any agreement allows VAT to be charged in addition to the agreed payment. Where the sponsor is able to recover the VAT charged, that should not result in a cost to the sponsor and should be beneficial to the charity because it increases the value of its taxable activities.

However, if a sponsor has a restricted ability to recover VAT — for example a bank or insurance company — a VAT cost will arise. Add this to my profile. The taxation of sponsorship fees under Internal Revenue Service rules can be tricky.

Since the distinction between advertising and acknowledgement is unclear, consultation with an accountant or lawyer is advisable. Nonprofits are required to give donors a statement of the fair market value of the gift premium. Companies often donate products to nonprofits, ranging from costumes to bottled water. A nonprofit treats the donation of product as an in-kind sponsorship.

Kay Tang is a journalist who has been writing since She previously covered developments in theater for the "Dramatists Guild Quarterly.