Q: If a consultant or supplier provides their time/services to a not-for-profit, can the organization issue a tax receipt to the provider for what the time or services would have been worth in the business world?
A: Yes. You get the benefit of the charitable donation based on FMV of work/services you perform, provided that the organization is registered as a charity and is able to give out donation receipts. Having said that, there are two sides to the transaction and you would also be required to recognize the same amount in income. You would also have to charge them GST on the value of the services. And to make things just a little more complicated, you can only deduct the donation to the extent of 75% of your net income.
Let's put some hypothetical numbers to this. Suppose you do work which you would normally charge $10,000. You would recognize $10,000 of gross revenue, and would need to remit $600 of GST. To preserve your cashflow, you would probably want to make sure you at least collect $600 of cash from the charity. You would have $10,000 or gross revenues, and a $10,000 donation expense. Provided your net income after all expenses for they year is at least $13,333, you would be able to deduct the entire charitable donation and there would be no net effect on your taxable income --- making it a wash.
Q & A written by Rolland Vaive, CA, TEP, CPA - For more information, visit Rolly at http://www.taxadvice.ca/
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