On a recent trip to New York City, my wife and I visited the Tenement Museum on Manhattan’s Lower East Side. While the museum itself is fascinating, a sign at the admissions area was intriguing from a charity law perspective. Like most museums, the Tenement Museum had a small sign acknowledging the generosity of its corporate sponsors. However, in this case the Museum in fact took the extra step of offering a 10% discount in the admission fees to employees of those sponsors.

Now while this is undoubtedly a wonderful PR move, if the situation were to occur in Canada it raises a series of questions and concerns. Starting with the premise that if Canadian donors (to a Canadian version of the museum) receive a charitable donation tax receipt for the donation, one would expect the charity to deduct from the amount of the receipt the amount of value returned to the donor or non-arm’s length parties (i.e. the employees). In theory, this would be the aggregate discount received by the employees. But how could the charity possibly know at the time of the issuance of the receipt how many people would take advantage of the discount (obviously, if only an issue of timing during the calendar year the issue could be dealt with, but things are rarely that simple). And of course, if the charity cannot accurately calculate the amount of the receipt, it cannot issue a receipt at all!**

On the other hand, perhaps the corporation did not receive a charitable donation tax receipt. Such a receipt would only allow the corporate donor to deduct the amount of the donation and not receive a tax credit like for an individual donor. If the corporation had a valid business reason for making the donation it could deduct the donation without receiving a receipt. This brings up a second question, assuming no business relationship with the museum – is receiving a reduction in fees to the museum for one’s employees (and generating some goodwill) sufficient business reason to deduct the donation?

One would certainly hope this to be the case, as not only does it avoid the problems involved in issuing a charitable donation tax receipt but it also expands the potential budgets for corporate donation. For example, assuming a valid business reason, corporate donations would not be limited strictly to the corporation’s “charitable giving” budget but may also include its advertising budget or perhaps an “employee morale” budget. While such decisions rest in the hands of the corporate decision makers charities need to understand the issues of concern to the donors if they are to make the decision to donate an easy one.

This article was originally published in the July 9 edition of Charity Law Insights. To subscribe, please visit: www.drache.ca/newsletters.

** If you are interested in delving deeper into the questions that Adam is raising, take a look at the CharityVillage® Campus course, Receipting Charitable Gifts in Canada.