In the summer of 1997 Revenue Canada clarified their position around issuing donation receipts for events which include an auction. The topic reappeared this summer in the Registered Charities Newsletter (No. 7). As Revenue Canada appears to be focusing more attention on the charitable sector we thought it would be a good time to discuss the rules surrounding fundraising auctions.

Revenue Canada's rules

Receipts may only be issued for events that Revenue Canada classifies as a "like event". To the best of our knowledge Revenue Canada has not issued a written definition of a "like event". Over the phone a Revenue Canada representative informed us that a "like event":

·         must happen at a particular moment in time;

·         must be ticketed; and

·         usually involves a consumable item such as dinner.

An auction does not qualify as a "like event". Instead, an auction falls under the same category as a chance to win a prize or draw. As such, registered charities cannot issue donation receipts for admission to auction events.

The problem

Revenue Canada considers a "like event" combined with an auction to no longer be a "like event". Since all events other than like events are non-receiptable no donation receipt may be issued for any part of the admission charge to the combined event. This presents a problem for organizations staging gala events as many galas combine a dinner with an auction (silent and/or live). The auction often provides a substantial portion of the net fundraising proceeds of the event and is generally essential to the success of the combined event.

To illustrate the problem: consider a formal fundraising dinner for patrons at a hotel ballroom followed by a live auction in the same room. Tickets are $500 per person with an expected donation receipt of $400 per ticket. If the auction portion of the event removes the ability of patrons to receive the $400 donation receipt then selling the tickets will be considerably more difficult.

When does having an auction associated with an event pose a problem?

We understand from Revenue Canada that an auction will jeopardize an organization's ability to issue a donation receipt only if attendance at the auction is limited to or gives the appearance of being limited to event ticket holders. If your organization issues separate tickets for both the auction and non-auction portions of your event then a donation receipt could be issued for the difference between the ticketed price and the fair market value of the non-auction portion. No receipt may be issued for the auction ticket.

Organizations generally do not separately ticket the auction and non-auction portion of events for good reasons. Patrons are less likely to purchase a separate auction ticket and auctions are often structured as the evening’s entertainment. Continuing with the example used above, a Revenue Canada representative informed us that they would consider attendance at the auction as being available only to dinner ticket holders. In Revenue Canada's eyes the requirement of formal dress at the event, in addition to the absence of general seating for non-dinner patrons implicitly limits auction attendance to the dinner attendees. Being unable to issue donation receipts at such an event would, at best, be highly embarrassing for the host organization and could, at worst, be financially disastrous.

Linking a silent auction to an event can pose similar problems if only event patrons are able to see and bid on auction items. Revenue Canada advised us that none of an event ticket price would be eligible for a donation receipt if attendance at the silent auction is implicitly limited to event patrons.

Strategies to reduce problems

Auctions are often very lucrative and efficient fundraising events. Provided your organization follows Revenue Canada's guidelines you can continue to raise funds through auctions without jeopardising the charitable status of your organization. Here are several suggestions:

1.      Have an auction that is not combined with any other event and do not issue receipts to the participants for admission tickets. This approach is often used for stand-alone art auctions.

2.      Hold an auction and a "like event", such as a gala dinner, as separate events with separate tickets issued for each event. A patron could then choose to buy tickets to both events or to either one. A receipt would be issued for part of the purchase price of the dinner tickets even if the auction and dinner were hosted on the same evening and in the same place. You could sell tickets to the auction separately for a nominal sum (e.g. $2). The dinner ticket price would naturally be higher and a receipt could be issued for the appropriate amount (see Vol. II, Issue 6, p.26).

3.      If you plan to combine a "like event" with a free auction under one ticket then:

- make it clear that the two are separate events. Consider posting a public sign at the entrance to the event announcing the auction;

- make it clear that those who paid to attend the dinner will be given no preference at the auction (e.g. in terms of seating);
- have additional seating for non-dinner guests available at the auction;
- have separate entrances to the auction and the dinner areas. Make sure security is adequate, as entrance to the event is now effectively open to the non-paying public. Security could be a major concern at a silent auction where the items are often on display for a significant period of time.
- do not make the auction the primary focus of the event.

If you have any questions about fundraising auctions we strongly urge you to call the Charities Division of Revenue Canada at 1-800-267-2384 or visit them online at http://www.rc.gc.ca.