Fundraising is one of the most heavily scrutinized acts for
charities by the Canada Revenue Agency (CRA), and charities can
lose their registration if they fail to comply with acceptable
fundraising practices. The CRA interprets 'fundraising'
broadly to include the solicitation of donations of cash or gifts
in kind, or the sale of goods or services to raise funds. In
practice, this includes planning, researching, or preparing to ask
for support, along with related activities such as profile raising,
donor stewardship, and donor recognition.
Below are some important tips for how charities can ensure they
raise the funds they need without overstepping the boundaries of
their charitable goals and thus risking an investigation or worse
from the CRA. For more information from the CRA on fundraising
practices for charities, please see here.
Tip #1: Avoid any deceptive practices
This seems like a very simple rule to follow, but the CRA takes
very seriously any fundraising claims made by charities that it
determines is not entirely truthful, accurate, complete and timely.
For example, some charities will claim that 100% of the money they
raise will go to charitable work. Well this may be true in some
circumstances, in others there are some expenditures involved in
the fundraising (see tip #4 below) that are funded
by donations. In such instances, the CRA would see this 100% claim
as deceptive and the CRA takes the position that the negative
impact of deceptive fundraising practices outweighs the public
benefit of the charitable work supported by a charity's
Tip #2: Watch your use of merchandise or gifts
Purchasing merchandise or some other tangible benefit for
fundraising is a common practice by charities looking to raise
funds, who will then, in turn, provide the merchandise as a gift
for donors. Merchandise such as calendars, clothing or photographs
are common examples of such donor gifts. This practice is not on
its face improper but the CRA will be concerned if there is
evidence that the charity paid more than fair market value for
fundraising merchandise, especially if the sourcing of this
merchandise was not on arm's-length terms. Similarly, if the
merchandise purchased has more than a nominal value, the charity
will have to accurately assess its fair market value and deduct
this amount from any tax receipt it issues to donors.
Tip #3: Keep remuneration of fundraisers reasonable
Like the use of merchandise or gifts, if the salary and benefits
paid to staff for any fundraising position exceeds the fair market
value of the services provided, this will also raise a red flag
with the CRA. Charities will often hire outside parties to raise
funds on their behalf and will pay them a portion of the funds
raised. These arrangements tend to be heavily scrutinized,
particularly if not well-documented or result in a windfall profit
for the fundraiser. If third-party fundraisers are to be used,
ensure this is disclosed to donors along with how these fundraisers
Tip #4: Monitor your fundraising expense ratio
As a more general rule, a high fundraising expense ratio is
often seen as an indicator that a charity may be engaged a
prohibited fundraising activity and the higher a charity's
fundraising ratio, the more likely it is that the CRA will seek
additional justification for fundraising costs. The fundraising
ratio is determined by dividing fundraising expenditures by
fundraising revenue using the entries from the charity's Form
T3010. Generally, a ratio of costs to revenue under 35 per cent is
seen as unlikely to generate concerns but once charities go over
this threshold it is more likely that the CRA will requested a
detailed assessment of their expenditures, especially if this ratio
is far exceeded
Tip #5: Be careful how much you actually raise
Finally, while raising more funds than a charity intends is a
problem many would wish to have, the CRA does require an identified
use or need for all funds raised by a registered charity.
Accordingly, engaging in fundraising which may result in an
unjustified level of reserves may indicate a charity is engaging in
prohibited fundraising activities. Similarly, if a registered
charity has sufficient income to achieve its charitable purposes
the CRA may question new fundraising activities. As such, a
registered charity must be able to justify new fundraising
activities and demonstrate it has considered the ability of current
revenues to meet existing and reasonably projected organizational
needs, and that it has specific plans for the additional funds to
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
Under the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan Act and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions.
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