Tax Treatment of the Provision of Rent-Free Leases to Charity

January 31, 2013 | Andrew Valentine

are occasionally offered the opportunity to use the property of another person
free of charge.  This may include the
provision of rent-free office or parking space, or the use of physical
resources such as cars or equipment.  In
some cases, such individuals will request that instead of the charity paying them
for the use of the rented or loaned property, the charity should simply issue a
receipt for the amount of the rent foregone. 
In such circumstances, it is important that charities and their supporters
understand the rules under the Income Tax
and CRA policy.

The Income Tax Act provides that only gifts
of property can be receipted.  For this reason, donations of services or
loans of property to a charity do not qualify as gifts because they do not
transfer a property interest to the charity. 
They simply allow the charity to use the property of the donor, or to
benefit from the donor’s services, free of charge.  It follows from this that providing rent-free
accommodation is also not eligible for a receipt, because it does not involve a
gift of property.

it is not possible for a charity to issue a receipt directly for the value of
the rent foregone by the donor, there are two ways the charity can proceed where
it receives rent-free accommodation or a rent-free lease of property and the
provider of the rent-free accommodation wants to receive a receipt:

  • The
    charity and the donor can conduct a “cheque exchange”, in which the charity
    pays for the rental of the property and the landlord donates the payments
    back.  It would be crucial to be able to
    show documentation of two separate transactions: the rent payment by the
    charity for the lease, and the subsequent voluntary donation of some or all of
    this rent back to the charity.


  • The
    landlord/donor can forgive the rental debt owned by the charity.  In this case, there would need to be
    documentation of the lease establishing the rental obligation of the charity as
    tenant, as well as documentation of the forgiveness of the debt by the

It should
be noted that in both cases, the landlord would need to include the rental
amount in income.  Thus, there would be
no tax advantage to the landlord by picking one approach over the other.

CRA has
commented that the assignment of a lease to a charity by the holder of a
leasehold interest may qualify as a gift of property for which a receipt can be
issued.  However, this must be
distinguished from the circumstance where the owner of the property provides a
lease rent-free.  The latter situation
can only be dealt with through one of the approaches described above.


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