Charity lawyer Mark Blumberg reported ( earlier this year about an interesting letter from the Canada Revenue Agency (CRA) in response to a question from an educational institution, which was raising funds to construct buildings on its campus to be used for its charitable purposes.  The educational institution, like many other charities, wanted to give naming rights to donors according to donations levels; for example, you give us $10,000, we’ll name a classroom after whoever you want (including yourself), but if you give us $100,000, you’ll have naming rights to a pavilion, and for $1,000,000 you get a whole building.

This is a common practice in the world of philanthropy.  Naming rights may be requested or expected by the donor, or may be offered by the charity.  Sometimes the donor wants to honour their parents or another deceased family member by using the naming rights on them, other times the donor prefers their own name to be on the plaque.  From the outside, this may seem silly or even narcissistic, but there are a lot of important considerations at play.  Having one of your buildings sport the name of a well-known personality sends a message to your community, your other donors, the donor’s children and grandchild and so on, which could be invaluable. 

Consider how impressive it may sound to some to hear about the “Jim Pattison Pavilion” at Vancouver General Hospital, and compare that to the ring of the ”Andy Dick Pavilion” (no offence to Andy Dick).  On the other hand, Bernie Madoff (New York Times) must have had his name on an incredible number of charitable facilities before news of his crimes were made public, and my guess is taking that name down often is no easy (or inexpensive) feat.

The question from the educational institution that was addressed in the CRA’s letter was whether the amount of the donation for tax purposes should be reduced to reflect the “advantage” received by the donor in the form of naming rights, specifically where the donor carries on a business that may be connected in some meaningful way to the name that will appear at the end of the day.  The legal discussion underlying this issue is the same one involved with any fundraising event: if the amount paid by a guest (e.g. $250) exceeds the actual cost of the “advantage” they receive (e.g. a nice meal), then the charity should give them a charitable receipt for the balance – that is, the specific amount the guest is “donating” to the charity without getting anything in return.

In the letter, this is how the CRA responded:

Where naming rights are provided in gratitude for a gift, the value of any advantage in respect of the gift would be determined at the time of the gift and based on the prospective economic benefit associated with the naming rights granted.  If, having regard to the facts, there is no prospective economic benefit associated with the naming rights, it is our view that the amount of the advantage would be nil.

In non-tax language, if the donor is getting a business benefit from the naming rights, the value of the “gift” must be reduced accordingly.

This is how the conclusion of the letter was explained by Andrew Valentine at Miller Thomson LLP:

Charities need to ensure that they consider the economic value of any naming rights provided to donors, particularly where the donor is a corporation or partnership, or where the naming right identifies a business with which the donor has a connection.  Where the naming rights have value, this value must be determined and subtracted from the value of the receipt.  In some cases, the naming rights may vitiate the issuing of a receipt altogether if the gift was made with a view to advancing the economic interests of the donor rather than as a gift. 

Bottom line: if you sense a donor will get a business benefit from naming rights, call your lawyer.  Mishandling it will be bad for everyone, and the cost of the legal advice should be considered in light of the size of the donation.

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