In 2009, CRA released its Fundraising by Registered Charities guidance, which provides clarity on CRA’s position on fundraising. While not recognized as a charitable purpose or activity, fundraising is allowed as long as it is done within the legal parameters set out by CRA.
In general terms, the guidance reflects an expectation that if support is solicited for a social cause then a majority of the funds received should go towards that cause e.g. to fund medical research, to feed the hungry, to enhance post secondary education, etc. If more money from solicitation efforts ends up in the hands of organizations or individuals who are not ‘the cause’, I believe it is reasonable to ask at what point does a donation or show of support cease to be one if the cause (public benefit) is not the primary beneficiary of said support.
The sale of goods for fundraising purposes
This fundraising activity appears to capture the most attention in SE resources as it places goods and services in the marketplace in the hope potential surpluses can be achieved to be put towards social programs. Girl Guide cookies, lotteries and raffles, and golf tournaments are common examples. Despite the appearance of being a business, registered charities who operate these activities must abide by the Fundraising guidance.
Conversely, SE promotes fundraising outside of regulatory confines to provide opportunities for ’social’ consumers - those who choose products that have a social element connected to them. This likely leads to an increase in an competition for fundraising dollars, potential risk of social capital, and lower overall social impact. Purchaser motivation and the size of an organization’s constituency would be contributing factors.
Should a charity operate a formal ‘fundraising’ business?
In order to explore the potential of socially conscious consumerism without risk of social capital could a charity start a separate, for-profit corporate entity to sell retail goods? The products would be positioned the same as fundraising goods; purchase of them will create social impact as proceeds of their sale will be directed towards the charity via distributions and/or donations.
In my opinion, the rules against bestowing private benefits to the corporation, the potential for losses, and the negative reaction from their supporters that would accompany this, make this strategically unattractive. Relying on goodwill towards a cause effectively applies a ‘cannot fail’ condition on the corporation. If the company fails to generate any profits, then its consumers’ have had zero social impact which will reflect badly on the charity, potentially dampen future solicitation efforts to those consumers, and possibly to the community. No one wants to hear that money directed to a cause did not reach its intended recipients.
SE as a profit generator
It is stated in a few different resources that SE can have different motives, one of them being to “generate profits in order to enjoy greater community impacts or to lessen reliance on funding”. I would interpret this as a SE activity that does not deliver any social impact from its actual operation other than the surpluses it is able to direct to a social purpose.
One SE idea that would fit this description involves the retail sale of an essential good or service such as healthy food in the marketplace, i.e. on a for-profit basis to the public. The strategy is to generate surpluses which will then be used to provide the same good or service to a marginalized group or community either for free or at a subsidized rate.
I believe this is idea is based on a misinterpretation of how a service-subsidized charitable program works where an essential good or service is offered at more than one price level to accommodate lower income clients. The difference being the good or service offered to lower income clients is not reliant on sales at the higher price level. In the SE model, goods and services are only offered to the marginalized group if the for-profit activity generates a surplus.
The sale of recycled clothes and goods
This activity is frequently mentioned as an example of SE as a profit generator that promotes environmentally-friendly recycling. In CRA’s words, selling donated goods “is not considered to be a commercial activity” but legal opinion indicates it does not appear to be clear in CRA policy whether the for-profit sale of donated goods is considered fundraising or a business, and if a business, whether it would be considered an allowable related business. The solicitation and sale of used clothing and goods is an activity that may require further regulatory clarity or changes to answer these questions.
Oyler Consulting works with registered charities and non-profit organizations to increase their effectiveness and capacity to deliver their programs and services. Services include practical guidance on Canada Revenue Agency policy for registered charities, helping organizations build successful fundraising programs, program and service development, and social enterprise. Visit www.oylerconsulting.ca; contact David Oyler by email.
