On April 20 of this year, Canada Revenue Agency
released its new Fundraising by Registered Charities Guidance: CG-013
Guidance"). It updates and replaces CRA's earlier Guidance (CPS-028): Fundraising by Registered Charities
that had been released on June 11, 2009.
The New Guidance represents a significant improvement
as it is much more
readable and practical in its structure. However, it is still a complex
document that will require careful reading.
CRA has advised that the New Guidance does not
represent a new policy position of CRA, but rather provides information on the
current treatment of fundraising under the Income
("ITA") and the common law. As such, the New Guidance will have a
significant impact on current CRA audits, not just future audits. As well, the
New Guidance applies to both receipted and non-receipted fundraising.
must be ancillary
The New Guidance is intended to provide general advice
for charities to follow and is based on the legal principle, established by
case law, that fundraising must be seen as a necessary means-to-an-end for a
charitable purpose, rather than an end-in-itself. In this regard, it is
possible for a charity to engage in fundraising activities, provided that the
fundraising is ancillary and incidental to the primary purpose of achieving the
In addition to complying with the New Guidance,
charities must continue to meet all other requirements of the ITA, including
the 3.5% disbursement quota. The fundraising ratio referenced in the New
Guidance (which remains the same as in CPS-028
results from data that is included in a charity's T3010. As such, it will be
important for the board to review and approve the charity's T3010 before it is
filed with CRA, given that the information contained in it can later be
scrutinized by donors and the press, as well as members of the public.
The New Guidance explains that as a general rule,
fundraising is any activity that includes a solicitation of present or future
donations of cash or gifts in kind, or the sale of goods or services to raise
funds, whether explicit or implied. Fundraising may include a single action,
such as an advertisement, or a series of related actions, such as a capital
campaign. It includes direct activities, such as face-to-face canvassing, or
indirect related activities, such as researching and developing fundraising
strategies and plans.
Fundraising activities can be carried out by either
the registered charity or by another party acting on the charity's behalf, but
does not include seeking grants, gifts, contributions or other funding from
governments or other registered charities, or recruiting volunteers to carry
out the general operations of the charity, or related business activities. This means that not only are the costs
associated with such requests not included in the fundraising expenses, but the
resulting income from government and other charities is also not included in
the income with regards to the fundraising ratio explained below.
When is fundraising
The New Guidance states that the following conduct is
prohibited and will be grounds for revocation of a registered charity's status,
imposition of sanctions or other compliance actions, or denial of charitable
registration. Each of the following types of conduct are described in detail in
the New Guidance:
Fundraising that is a purpose of the charity
Fundraising with a more than incidental private benefit
Fundraising that is illegal or contrary to public policy
Fundraising that is deceptive
Fundraising that is an unrelated business
Registered charities must report fundraising
expenditures (all costs related to any fundraising activity) on their annual
T3010. Where some fundraising activities include content that is not related to
fundraising, some of these costs may be able to be allocated to charitable,
management, administrative or political activities. However, the onus is on the
charity to explain and justify the allocation.
The New Guidance provides a helpful and more user-friendly
explanation of the recommended approach to take when allocating expenditures,
compared to CPS-028
. CRA has three
guidelines that are designed to support a reasonable and consistent approach to
allocating and reporting expenditures related to fundraising, explained in
greater detail in the New Guidance: 100% allocation to fundraising, no
allocation to fundraising, and pro-rated allocation of costs to fundraising and
Evaluating a charity's
The following are examples of some of the indicators
that CRA will generally consider to be evidence of unacceptable fundraising.
Each of the factors below is explained in detail in the New Guidance and should
be carefully studied.
- Resources devoted to fundraising
are disproportionate to resources devoted to charitable activities
- Fundraising without an identifiable
use or need for the proceeds
- Inappropriate purchasing
or staffing practices
- Fundraising activities where
most of the gross revenues go to contracted third parties
- Commission-based remuneration
or payment of fundraisers based on amount or number of donations
- Misrepresentations in fundraising
solicitations or disclosure about fundraising costs, revenues or practices
- Fundraising initiatives
or arrangements that are not well documented
- High fundraising expense
The fundraising expense ratio is a global calculation
for a fiscal period, determined by dividing fundraising expenditures (line
5020) by fundraising revenue (lines 4500 and 4630) using the entries from the
In this regard, it is important to point out that just
because a charity may have a fundraising ratio that exceeds 35% in any one
given year does not necessarily mean that it is non-compliant with CRA's
requirements under the New Guidance, only that CRA will examine the average
ratio over recent years to determine if there is a trend of high fundraising
costs requiring a more detailed assessment of expenditures.
may influence CRA's evaluation of a charity's fundraising
In this regard, CRA recognizes that the charitable
sector is very diverse and fundraising efforts will vary between organizations.
CRA will therefore look at a number of factors to evaluate a charity's
fundraising activity that involves high fundraising costs, for example, the
size of the charity, charities that advance causes with limited appeal, donor
development programs, and gaming activities such as lotteries or bingos.
CRA advises that adopting the best practices outlined
in the New Guidance may reduce the risk of CRA finding that a charity is
engaging in unacceptable fundraising. The New Guidance describes the following
best practices, each of which should be carefully studied.
Prudent planning processes
Adequate evaluation processes
Appropriate procurement and staffing processes
Managing risks associated with hiring contracted (third party)
Ongoing management and supervision of fundraising
Keeping complete and detailed records relating to fundraising
Providing disclosure about fundraising costs, revenues, practices,
- Maintaining a reserve fund policy and ensuring that fundraising
is for an identified use or need
Although the New Guidance is a longer document than
the earlier CPS-028, it is a much better organized resource tool and eliminates
a lot of the confusion that had been experienced with CPS-028 concerning
allocation of fundraising expenses.
However, the improvements to the New Guidance will
likely create an expectation by CRA that charities should now be able to
understand and comply with the New Guidance. This is reflected in the fact that
the New Guidance uses the more directive "should" as opposed to the previous
permissive language of "may" in many places within the New Guidance. Charities
will want to carefully study and ensure compliance with the New Guidance on a
go forward basis.
The new Fundraising by Registered Charities
Guidance: CG-013 (20 April 2012) can be accessed online from Canada Revenue
The earlier Fundraising by Registered
Charities Guidance CPS-028 (11 June 2009) can be accessed online
from Canada Revenue Agency at l.
more detailed analysis is available in Charity Law Bulletin No. 283.
Terrance Carter is the managing partner with
Carters Professional Corporation and is counsel to Fasken Martineau DuMoulin
LLP on charitable matters and editor of charitylaw.ca. E-mail him.