Donor-advised funds (DAFs) have several important implications for bookkeeping in Canada, both for the donor and the charities that receive grants from DAFs.

Here's a breakdown:

For Donors:

• Tracking Donations: Donors must keep accurate records of their contributions to DAFs. This includes the date of the donation, the amount, and the type of asset donated (cash, stocks, etc.). This documentation is essential for claiming the charitable tax credit on their income tax return. Proper bookkeeping ensures these records are readily available.

• Valuation of Non-Cash Donations: If a donor contributes assets other than cash (e.g., stocks and real estate), they must determine the asset's fair market value at the time of the donation. This valuation is crucial for calculating the tax deduction. Accurate bookkeeping is essential for maintaining records of these valuations.

• Tracking Grant Recommendations: While the DAF sponsor handles the actual distribution of funds, donors should keep records of the grants they recommend. This helps them track their charitable giving and can be useful for future philanthropic planning.

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For Charities Receiving Grants:

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• Recording Grant Revenue: Charities must properly record grants received from DAFs as revenue in their accounting records. This includes the date of the grant, the amount, and the name of the DAF sponsor. This revenue needs to be properly classified (restricted or unrestricted) depending on any conditions attached to the grant.

• Acknowledging DAF Grants: While the grant may technically come from the DAF sponsor, charities often acknowledge the donor's recommendation. This requires maintaining records that link the grant to the recommending donor (unless the donation is anonymous). This is important for donor relations.

• Compliance with CRA Requirements: The CRA requires charities to maintain accurate records of all donations received, including grants from DAFs. This information is reported on the charity's T3010 annual information return. Proper bookkeeping is essential for ensuring compliance with these reporting requirements.

• Fund Accounting for Restricted Grants: If a DAF grant is restricted to a specific purpose, the charity must use fund accounting principles to track the grant funds separately from other funds. This ensures that the grant is used for its intended purpose and that proper reporting is maintained.

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Key Bookkeeping Practices Related to DAFs:

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• Clear Chart of Accounts: The charity's chart of accounts should include specific accounts for tracking DAF grants, distinguishing them from other types of donations.

• Detailed Transaction Records: Maintain detailed records of all transactions related to DAF grants, including the date, amount, and any restrictions.

• Regular Reconciliations: Regularly compare bank statements with internal accounting records to maintain accuracy and catch errors.

• Internal Controls: Implement strong internal controls over handling DAF grants to prevent fraud and errors.

• Professional Advice: Consult with a qualified accountant or bookkeeper experienced in non-profit accounting to ensure compliance with CRA regulations and best practices.

In summary, proper bookkeeping is essential for DAF donors and the charities that benefit from them. Accurate record-keeping ensures compliance with tax laws, facilitates responsible financial management, and supports effective philanthropic planning.