( Disponible en anglais seulement )
CRA has just released an updated version of its guidance on fundraising activities by registered charities. The new Guidance GC-013 Fundraising by Registered Charities, was issued on April 20, 2012, and replaces former Guidance CPS-028, which was originally released on June 11, 2009. We reported on CPS-028 in the July 2009 issue of this Newsletter.
CRA indicates that the new Guidance does not reflect any substantive change in CRA’s policy, but is intended rather to respond to feedback received from the charitable sector by clarifying certain concepts and making the Guidance more intuitive to use. Structurally, the new Guidance is simpler than CPS-028. Unlike CPS-028, which was split into two parts – a short summary document and more detailed background document – GC-013 consolidates this information into a single document. This step alone will make the new Guidance much easier for charities and advisors to follow.
The Guidance addresses the same issues as were covered in CPS-028, setting out CRA’s position on when an activity will be considered to be a fundraising activity, the circumstances in which CRA will consider a fundraising activity to be unacceptable, and the factors that CRA will consider when evaluating a charity’s fundraising practices. As before, the Guidance includes a list of best practices to which charities should pay particular attention.
Some new or updated aspects of the Guidance are as follows:
- There is additional clarity on when a fundraising activity will be considered to have delivered an unacceptable amount of private benefit. CRA states that such benefits will only be acceptable when they are incidental to the achievement of a charitable purpose. CRA states that in order to be considered “incidental”, the benefit must be necessary, reasonable and proportionate to the public benefit achieved.
- CRA has provided additional detail on when a fundraising activity will be considered illegal or contrary to public policy. CRA states that fundraising will be illegal when the activity itself contravenes federal or provincial law, or where it is associated with illegal activities (such as, for example, an abusive tax shelter). It notes that a violation of public policy will be found where the activity fails to comply with “legislation or some equally compelling public pronouncement” evidencing public policy, or where it is found to harm the public interest (as where, for example, fundraising contracts provide more than 70% of funds raised to third party fundraisers).
- CRA has provided some additional clarity on the allocation of expenses to fundraising, and the circumstances under which expenses should be allocated 100% to fundraising, 100% to charitable expenditures, or on a pro-rated basis between different types of expenditures. The Guidance includes details on the characteristics of charitable, fundraising, management/administration, and political expenditures, so as to help charities distinguish these and allocate costs.
- CRA comments on how it will evaluate charitable gaming activities (e.g., lotteries and bingos). Such activities are regulated provincially, and cost to revenue ratios of 70% or higher may be acceptable. CRA states that it will accept higher fundraising ratios in respect of gaming activities that comply with provincial regulations.
- CRA has reduced the prominence of the “fundraising ratio” in its evaluation of a charity’s fundraising practices. The fundraising ratio (i.e., the ratio of fundraising costs to funds raised) is now one of several factors that CRA will consider.
The updated Guidance is helpful for its added clarity and explanation of CRA’s position. Charities should review the new Guidance carefully. Miller Thomson’s Charities and Not-for-Profit Lawyers can assist charities to understand their legal obligations related to fundraising and to assist them in ensuring that such activities do not expose charities to unnecessary regulatory risk.