My name is Mark Goodfield. Welcome to The Blunt Bean Counter ™, a blog that shares my thoughts on income taxes, finance and the psychology of money. I am a Chartered Professional Accountant and a partner with a National Accounting Firm in Toronto. This blog is meant for everyone, but in particular for high net worth individuals and owners of private corporations. The views and opinions expressed in this blog are written solely in my personal capacity and cannot be attributed to the accounting firm with which I am affiliated. My posts are blunt, opinionated and even have a twist of humor/sarcasm. You've been warned.

Friday, February 25, 2011

Confessions of a Tax Accountant & The Donation of Services to a Charity

I have pre-written many of my March and April blogs, as my life as a tax chartered accounant will get crazy shortly. Between preparing trust and estate returns which are due March 31st, personal income tax returns due April 30th, and the onslaught of December corporate year-ends, I will be kept very busy. In addition, I always seem to have a client either selling or purchasing a business during tax season, god forbid this should happen in the other ten months of the year.

To add content to my blog and to keep it fresh, I intend to start a weekly blog posting called Confessions of a Tax Accountant. This is not intended to be a whining session by an overworked tax accountant, but hopefully an update on income tax and filing issues that arise as tax season moves forward.

I am not sure where this will go exactly and whether it will work or be interesting, but I will give it a shot. An  issue that arose this week is discussed below.

Donation of Services

I had a client telephone me this week (actually the third client this year) excited that they were going to be issued a large donation receipt for the services that they provided gratis to a charity. Being an accountant, I did my duty and poked a hole in their balloon of inflated donation hopes.

Unfortunately, a charity cannot issue a receipt for services and they should not be leading my clients into thinking they can. The CRA says in regard to the gift of services  “at law, a gift is a voluntary transfer of property without consideration. Contributions of services (for example, time, skills, and effort) are not property. Therefore, they do not qualify as gifts for the purpose of issuing official donation receipts."

My clients cannot fathom the CRA’s position. They tell me their clients/customers would have paid significant sums for these services that they have provided for free. In a way I understand their frustrations, however, the valuation of services is such a nefarious concept that if you look at this objectively, it would create a valuation nightmare for the CRA to allow such; that is why the CRA requires valuable property such as cash or goods (although the donation of goods has its own valuation issues) before a donation receipt can be issued. As an aside, even if the CRA provided for issuing recipts for services, they would then consider the provider of those services to have earned notional income for those services resulting in a net of zero.

Where a charity pays a service provider and the service provider then chooses to donate the money back, the charity can issue a receipt for the monetary donation. However this also results in a net of zero to the service provider, ie: income reported equal to a donation credit.

[Blogers Note: In my Confessions of a Tax Accountant blogs, I will discuss real income tax issues that arise, however, I may embellish or slightly change the facts to protect the innocent as the saying goes.]

The blogs posted on The Blunt Bean Counter provide information of a general nature. These posts should not be considered specific advice; as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained in one of the blogs.

No comments:

Post a Comment