This is part two of a three part series that simply and clearly explains the most important legal issues charities and their boards of directors need to be mindful of.
4) Compliance with the fundraising guidance
Canadian charities must be careful to abide by their legal and ethical obligations when they conduct any fundraising activities. In 2012, CRA released its updated Guidance on Fundraising by Registered Charities.
Some of the limits on fundraising activities include any activities that are considered illegal, deceptive, or provide too much private benefit. The CRA will look at many factors including but not limited to resources devoted to fundraising relative to charitable programs; fundraising without an identifiable use or need; the charity’s fundraising expenses to fundraising revenue ratio; inappropriate purchasing or staffing practices; activities where most of the gross revenues go to contracted non-charitable parties; commission-based fundraiser remuneration; misrepresentations in fundraising solicitations or in disclosure of fundraising costs, revenues or practices; and fundraising initiatives or arrangements that are not well documented.
It is important that a charity’s fundraising program and its costs are transparent, accountable and properly disclosed to CRA and the public. If third parties conduct fundraising, charities should not fall into the trap of entering what are claimed to be ‘standard form’ or ‘boilerplate’ fundraising agreements.
5) Proper issuance of official donation receipts
Registered charities are not required to issue receipts. However, if charities decide to issue charitable receipts then they will need to ensure that every receipt issued is accurate and compliant with the requirements of the CRA. According to the CRA, when audits are conducted, it has been discovered that approximately 89% of registered charities being audited are issuing receipts improperly. Many charities do not have all of the required elements on their receipts, or they are issuing receipts for services donated to a charity, which is inappropriate since ‘services’ are not considered property. Some charities make the mistake of “lending their registration” to other organizations, which is also prohibited. Even small mistakes in the form and content of a charitable tax receipt issued by a charity will be taken very seriously by the CRA. There are substantial penalties for inappropriate receipting. CRA provides information on receipting and sample receipts. I have a section at my website on receipting which includes a receipting kit.
6) Avoidance of abusive tax shelter schemes, fraudulent receipting and charity scams
According to the CRA, over the last eight years there have been approximately $6.3 billion dollars in donation receipts issued as part of "abusive charity gifting tax schemes". Approximately 1% of this amount was spent by these few registered charities on charitable activities. Over 190,000 tax returns have also been filed as part of these schemes and CRA has denied these ‘donations’. Many of these gifting schemes involve a taxpayer receiving a higher tax receipt than the actual amount of their donation. For example, ‘donating’ only $1000, but receiving a $5000 donation receipt. Over 100,000 Canadians have also filed tax returns with what CRA refers to as ‘fraudulent receipting’. In addition, there have been several other elaborate schemes used to abuse receipting privileges.
There are numerous types of inappropriate schemes that charities must avoid involvement with. Some of these schemes may be illegal, but there are also ethical concerns and they can undermine the public’s confidence in the charitable sector as a whole.
You can read part one of this four part series here.
Mark Blumberg is a lawyer at Blumberg Segal LLP in Toronto, Ontario. Contact him at mark@blumbergs.ca or at 416-361-1982 x237. For more information, visit his websites, www.canadiancharitylaw.ca orwww.globalphilanthropy.ca
