CONTRIBUTIONS OF GOODS OR SERVICES TO AN NPO: Tax Implications
In a January 6, 2020 Technical Interpretation, CRA considered whether a deduction was available to suppliers who contributed in-kind goods or services to an NPO with the expectation that they would benefit from word of mouth advertising and promotion.
Where the supplier is providing goods or services to an NPO in exchange for advertising and/or promotional services, a barter transaction may have occurred. As such, the typical rules for barter transactions would apply. In arm’s length barter transactions, the income is the price which the taxpayer would normally have charged a stranger for his services or goods/property. Where capital property is provided as part of the barter transaction, the value of the property would be considered proceeds of disposition. The expense for the goods or services received by a taxpayer is generally the same amount as the value of the goods or services given up, adjusted for any cash given or received as part of the transaction. Additional information on barter transactions can be found in Interpretation Bulletin IT-490, Barter Transactions.
For example, where a landscaper barters landscaping services to an NPO in exchange for advertising and promotion for their business, the landscaper would be required to include the value of the services provided to the NPO in its income. The landscaper would claim an equal deduction for advertising and promotion. The landscaper could also deduct costs of providing the landscaping services.
ACTION ITEM: When contributing goods or services, recognize that the deduction, in essence, is limited to the cost of producing and delivering the good or service, rather than its fair market value.