Cash donations serve as the primary source of funding program work for Canadian charities, but what about "Gift-In-Kind" donations?
GIK are donations of goods other than cash, and can be a powerful tool for charities to procure important items that help their programs. This can be anything from clothing to office equipment (professional services cannot not be gifted and receipted - that is considered volunteering under the CRA definitions of types of in-kind gifts). However, there are still several important things a charity must consider before accepting an in-kind gift.
You mean a charity may take a pass on donation? Isn’t that like looking a gift horse in the mouth?
Yes. Although donors may view the goods they are looking to donate as something of value, if it's not something that the charity can use, there's really no value for the charity in accepting it. And, in some cases, accepting certain in-kind donations can actually cost the charity more than the gift is worth and and/or work against the charity's ultimate goals.
Charities often get calls from a donor offering items from their home or small business and are surprised when the charity says "thanks, but no thanks", leaving the donor upset and wondering why on earth an organization asking for donations would turn away a gift.
So what are some of the things a charity has to consider when deciding to accept a gift?
- Is the gift something that is actually needed?
A gift of 20-year old technical manuals is probably not going to help a charity focused on fighting hunger.
- What will the cost be to pick-up the donation?
Will the charity have to rent a truck or pay for shipping to receive the gift?
- What will the cost of storing the gift until it can be used be?
Does the charity space to store the items before they are distributed, or will it need to rent storage? Storage units, even modest ones can cost upwards of $500 a month to rent.
- Are there other shipping costs?
A charity that works internationally, like Mission Without Borders Canada, has to pay to ship items overseas. In order to make this cost effective, items are usually held in storage until 40-foot container can be filled and then it is shipped overseas. Shipping a container from North America often costs $10,000+ once all logistics are calculated.
- Are there any import duty and tax implications?
Import taxes and duties are charged when importing donated goods overseas. Some countries will reject shipments outright, or charge extra duties for certain products depending on their import polices.
- Are there any legal implications?
Some GIK items can come with extra legal responsibilities - they may need to be certified as "safe" for shipping and others, such as medications or medical equipment can carry too high of an administrative cost for a charity to manage.
- Will the gift take away from the people or communities they are intended to help?
Although many GIK donations are useful, sometimes giving things out can have a negative effect on the economy of the community. Bulk donations of many retail items can hurt local manufacturers and lower the demand for local employment. In many cases countries have anti-dumping laws in place to protect against this.
Charities need to take these things into consideration and calculate the benefit of each in-kind gift. Sometimes even needed items have to be declined simply because the logistics to manage and distribute the gift far outweighs the value of the gift itself.
Charities often will run campaigns to help cover some or all of the extra costs associated with managing, shipping and distributing GIK items. In the best case scenario a donor will offer to cover some or all of the financial expenses associated, but more often than not a charity will use general donation funds to cover the costs.
How is the value of a gift determined? In Canada, charities are guided by the Canadian Revenue Agency and can only receipt a donor for the Fair Market Value of a gift. The CRA's definition of Fair Market Value is "the highest expressed in terms of money or money's worth, obtainable in an open and unrestricted market between knowledgeable, informed and prudent parties acting at arm's length, neither party being under any compulsion to transact."
Essentially what that means is the charity can value the gift at what either the person originally paid for it (with invoices to back that price up), or the average price the charity could buy the same product on the open market at. In many cases this would be close to the wholesale cost of the item(s).
For things like artwork or other items that may have a relative price, the CRA expects charities to have a processional third party evaluation completed if a tax receipt is to be issued (another expense to accept the gift).
So as you can see, in-kind giving isn’t as straight forward as giving something away. An in-kind gift can create extra expenses for a charity whereas a cash donation of the same value could have a greater impact on the charity's work and ability to meet their goals.