All gifts must have certain attributes. A gift must be:
- a transfer of property (for example, cash, stocks, real estate, or clothes), and
Since a service is not property, a donation of services is not a gift. A tax receipt cannot be issued for a donation of services.
Gifts in kind
Gifts in kind include all types of property, except for cash.
In order to issue a tax receipt for a gift in kind, a charity must be able to determine the gift's value. Depending on the type of property, valuing it can be very straightforward or very complex.
There are many different kinds of property. The particular classification of a property depends in part upon the circumstances of the owner of the property. For example, an article of clothing could be:
- personal use property, if the owner is an individual who wears the clothing;
- non-capital property (i.e. inventory), if the owner is a clothing retailer; or
- depreciable property, if the owner is a business that provides the clothing to its employees as uniforms to be worn on the job.
Gifts of life insurance
One way that individuals can make a large gift to charity is by giving a gift of life insurance. The charity then receives the proceeds of the insurance policy when the individual dies. An individual can give an insurance policy to a charity when the policy is first issued or at any time after that.
There are three parts to a gift of insurance that charities should understand. These are:
- the insurance policy,
- any premiums paid to keep the policy in force, and
- the proceeds of the policy when the insured person dies.
When an insurance policy is given to a charity, it must be an unconditional transfer of ownership of the policy. The policy might have no value (as is the case with a term life insurance policy or a newly issued whole life policy) or it might have a value (as is the case with an existing whole life insurance policy). If the policy has no value, the charity cannot issue a tax receipt to the donor. The insurance company that issued the policy will be able to provide the value of the policy to the charity so that the charity can issue a tax receipt to the donor.
Once a policy is owned by a charity, premiums will generally have to continue to be paid to keep the policy in force. (Some whole life policies may be “paid up”; that is, no further premiums are required to keep the policy in force.) If the donor pays the premium, she is considered to have made a gift to the charity equal to the amount of the premium. In essence, this is no different from a donor making a cash gift to the charity, which the charity then uses to pay the insurance premium.
The charity can issue a tax receipt for the amount of the premium the individual paid. The charity should obtain a copy of a statement or receipt from the insurance company to support the amount of the premium paid and also who made the payment.
When an insured individual dies, the insurance company pays out the proceeds of the insurance. When a charity collects insurance proceeds on a policy it owns, this payment is not a gift and no receipt may be issued. This is because the policy was a gift, and was receipted accordingly at the time it was donated. But if the policy was not owned by the charity, and the charity was simply named as the beneficiary of the insurance, then the proceeds are a gift, and a tax receipt for the amount of the proceeds may be issued to the owner of the policy (usually the insured individual's estate).
The Community Foundations of Canada has created two detailed resources describing the various gift options and their benefits to both donors and charitable organizations : Six gift options for Canadian donors, and the Canadian Charitable Gift Matrix.