How to register non-monetary assistance to a charitable organization?

Even though a charitable organization refers to companies that do not make profit and do not distribute it among their members, it somehow carries on business activities. 

In the course of its activities, a charitable organization faces the need to account for expenditures. For example, rent of premises, compensation payments, salaries, consumables, etc. Of course, such costs need to be covered.

One possible source of money for covering expenditures is the sale of material assets received from sponsors, donors and philanthropists. It is not uncommon for a charitable organization to receive assistance not in the form of money, but in the form of things of different nature, which it can then dispose of at its own discretion, for the purposes of its activities.

Taxes on non-cash assistance received

For example, a charitable organization (hereinafter - CO) was presented with chairs. A CO can sell them and get money. Is it necessary to pay taxes on the received money? 

Answer: If the money is spent only to cover the expenditures of the organization, without distributing the income among its members, the sale will not be considered income, so there is no need to pay taxes. The main issue is to properly conduct and execute the transaction.

What will it look like?

1. The accounting of a charitable organization, as the accounting of any other company, is based on the order of accounting policy. This order is a fundamental document for all situations that are not regulated, or are not fully reflected in the Legislative Regulations. The order approves internal documents that are “specific” for the purposes of the organization. If we consider the above example, we need to approve the form of an acceptance document for chairs.

2. In order the money received from the sale of chairs (in the above example) was not considered an income subject to taxation, it is important to draw up an accounting certificate. This certificate can also serve as a “budget” of the organization, which shall specify that you need a certain amount to cover the monthly expenditures. This may serve as evidence that the organization spends money on operational costs.

You may also like: Financial Reporting For Nonprofit Organizations

Our accountants can help you prepare all the necessary documents and templates for conducting activities and accounting of the charitable organization without problems. If you do not have your own accountant, we can offer our outsource services.

Please note that in addition to volunteers, the charitable organization employs staff who shall be also paid salaries. In this case, wages are taxed in accordance with the general procedure and are accounted for as expenses of the organization.

If you want to make head of the taxation issue for a charitable organization and to solve problems taking into account your activity, don’t hesitate to call us. We offer comprehensive accounting services.

Learn more about the registration procedure of a charitable organization here.