Canada Revenue Agency is seeking reaction and feedback from the nonprofit sector on summary guidelines it has published with reference to nonprofits’ fundraising activities. Some elements of the document will be more fully explained in an auxiliary statement late April or early May.

“The CRA wants to hear from charities, individuals involved in charitable work, government departments, and the general public,” says the introduction to the guidelines. “We would like your opinion on how these guidelines can be made easier to understand or more useful for charities’ self-assessment of their fundraising, and we welcome your comments about any aspects of the proposed guidelines.”

The policy statement will replace the one titled Applicants that are Established to Hold Periodic Fundraisers, CPS 001:

“It provides a framework that explains how to distinguish between fundraising and other expenditures, and clarifies how to classify and report activities intended both to raise funds and advance charitable programming.

“It explains when fundraising activities may preclude registration or may result in revocation of registration. It also explains what factors are considered when assessing if the fundraising undertaken by a registered charity puts its registration status at risk.”

Not a charitable expense

Since registered charities must have exclusively charitable purposes, and fundraising is not considered to be a charitable activity, fundraising expenses cannot be reported as charitable expenses, says the statement, “and fundraising activities are not normally treated as advancing the charitable purposes of a registered charity,” although fundraising is an acceptable activity.

Prohibited conduct, which will get a charity’s application for registration denied or threaten revocation of existing registration, includes: conduct that is illegal or contrary to public policy; conduct that has become a main, prevailing, or independent purpose of the charity; conduct that results in excessive or disproportionate private gain by individuals or corporations; a charity not devoting 100% of resources to charitable ends, since the harm arising from the charity’s fundraising practice outweighs its public benefit.

Charities must report as fundraising expenditures costs related to any activity that includes a solicitation for support (except from government or other registered charities), unless they can demonstrate that the activity would have been undertaken without the solicitation of support (the definition of what qualifies for this exemption is included).

There will be instances where, even if the activity would not have been undertaken without the solicitation of support, charities may be allowed to allocate a portion of the costs other than to fundraising expenses, where the activity also demonstrably furthers one of the charity’s purposes.

Awareness doesn’t count

“The CRA generally does not consider raising awareness of a charity’s mandate or work, when carried on in conjunction with fundraising through non-charitable third parties (such as for-profit telemarketing, direct mail or canvassing companies), to meet these requirements. So, charitites may not allocate costs for such activities except as fundraising expenditures.” (Ref: MADD)

The ratio of fundraising costs to fundraising revenue during a fiscal period will place a charity in one of five categories, ranging from acceptable to rarely acceptable. The grid will be the initial tool used in assessing the acceptability of a charity’s fundraising, “and serves as a general guide to the CRA’s expectations”. Other circumstances may come into play before final determination of the charity’s position on the grid.

Acceptable practice amounts to fundraising costs of less than 20% of total revenues, ie the charity nets more than 80%. Other standards: generally acceptable, 20% to 35%; potentially not acceptable, 35.1% to 49.9%; generally not acceptable, 50% to 70%; rarely acceptable, more than 70%.

Conduct considered as decreasing the risk of unacceptable fundraising, say the guidelines, includes: prudent planning processes, appropriate procurement processes; good staffing processes; ongoing management and supervision of fundraising practice; adequate evaluation processes; use made of volunteer time and volunteered services or resources; disclosure of fundraising costs, revenues and practice.

Risky activities

Conduct considered as increasing the risk of unacceptable funding includes: sole-sourced fundraising contracts without proof of fair market value; non-arm’s length fundraising contracts without proof of fair market value; fundraising initiatives or arrangements that are not well-documented; needless purchase, non-arm’s length purchase or purchase not at fair market value of fundraising merchandise; activities where most of the gross revenues go to contracted non-charitable parties; commission-based fundraiser remuneration or payment of fundraisers based on amount or number of donations; fundraisers receiving disproportionate compensation relative to non-fundraisers; total resources devoted to fundraising exceeding total resources devoted to program activities; misrepresentation in fundraising solicitations or disclosures about fundraising or financial performance; combined fundraising and charitable program activity, where contracted to a party that is not a registered charity or that is compensated based on fundraising performance.

Other circumstances that CRA might consider in mitigation of apparently excessive costs-to-revenue ratios: small charities or charities with limited appeal; charities that are investing resources for a return at a later time; charities whose purpose is to make gifts to qualified donees; charities whose activities include lotteries or gaming that is regulated provincially; charities engaged in cause-related marketing initiatives; charities with extraordinary spending, relative to their size, on infrastructure to ensure compliance with this fundraising policy.

The guidelines also include a checklist for small or rural charities, for their quick-and-easy estimate of their compliance with the regulations.


For the full report: www.cra-arc.gc.ca/tax/charities/consultations/fundraising-e.html; to comment, before June 30: fax 613/948-1320, consultation-policy-politique@cra-arc.gc.ca or Charities Directorate, CRA, Ottawa ON K1A 0L5.