A technical interpretation published recently by the CRA addresses the tax treatment of fundraising events organized by individuals. While many of the factual details of the event are redacted from the published document, the technical is nonetheless revealing of certain issues that should be considered when organizing individual fundraising events.
On the basis of the facts provided in the technical, an individual appears to have organized a fundraising event in which donations and pledges were collected to enter a team into the event. The details of the event are not specified. Proceeds collected from the event were used for at least two purposes, one of which was to donate funds to a charitable organization.
The taxpayer framed the question to the CRA as whether such a fundraising activity can be carried out by a non-profit organization (NPO) under paragraph 149(1)(l) of the Income Tax Act. The CRA noted the requirements for NPO status, which are (in summary):
- the organization is not a charity;
- the organization is organized and operated exclusively for purposes other than profit; and
- the organization does not distribute or otherwise make its income available to any member, shareholder or proprietor.
The CRA confirmed, consistent with previous statements, that fundraising is generally considered a profit activity, but that certain fundraising activities carried on directly by an NPO will not jeopardize its tax exempt status. The CRA states that limited fundraising activities involving games of chance (e.g., lotteries, draws), or sales of donated or inexpensive goods (e.g., bake sales or plant sales, chocolate bar sales), generally do not indicate that the organization as a whole is operating for a profit purpose. It is important, however, that these activities not be disproportionate relative to the other activities of the organization, such that fundraising can be seen as an independent purpose of the entity.
In the specific case addressed in the technical, the CRA stated that the event would not meet the requirements for 149(1)(l) status, because the event was not organized as a club, society or organization. Rather, it was conducted by an individual.
The CRA then turned to consider the tax implications for the individual conducting the event. It noted that fundraising events conducted by an individual could be viewed as an adventure in the nature of trade, which would constitute business income that is taxable in the hands of the individual.
The CRA addressed when income will be considered a non-taxable windfall, and enumerated several factors that will suggest this conclusion:
(a) The taxpayer had no enforceable claim to the payment;
(b) The taxpayer made no organized effort to receive the payment;
(c) The taxpayer neither sought after nor solicited the payment;
(d) The taxpayer had no customary or specific expectation to receive the payment;
(e) The taxpayer had no reason to expect the payment would recur;
(f) The payment was from a source that is not a customary source of income for the taxpayer;
(g) The payment was not in consideration for or in recognition of property, services or anything else provided or to be provided by the taxpayer; and
(h) The payment was not earned by the taxpayer as a result of any activity or pursuit of gain carried on by the taxpayer and was not earned in any other manner.
The CRA stated that on the basis of the facts of the individual fundraising event in question, the income earned from the event would not be considered a windfall but rather taxable income, on the basis that the amounts received were not gifts but rather funds received in exchange for participation in an event.
Without the full details of the specific event in question, it is difficult to comment on whether the CRA’s conclusion appears accurate. However, the technical highlights the fact that individuals conducting fundraising events on behalf of a charity or NPO need to take care to structure the event so that they will not incur an unexpected tax liability. If there is uncertainty, advice should be obtained before engaging in such events. Also, if the event is intended to encourage donations to a registered charity that will be eligible for tax receipts, care must be taken to ensure that the donations will be receiptable by the charity donee.
Miller Thomson’s Charities and Not-for-Profit lawyers are here to assist individuals seeking to conduct fundraising activities on behalf of charities and non-profit organizations.