Fundraising by Registered Charities: The Basics

March 24, 2010

Peter BroderThe Muttart Foundation

Lesley ConleyCharity Central

Production of this webinar and materials was made possible by a financial contribution from the Canada Revenue Agency

Who are we?

Legal Resource Centrewww.legalresourcecentre.ca

Charity Centralwww.charitycentral.ca

Other CRA projectshttp://www.charitycentral.ca/site/node/563

Process 1 hour session – 45 minute presentation, 15

minutes for questions

Mute feature in effect during presentation to eliminate background noise

Please submit questions using “Chat” feature

Follow up as best we can on all questions, if in doubt check with CRA

Information only, not legal advice

Overview

Guidance is meant as a framework to assist organizations & CRA in assessing permissibility of a group’s fundraising

Broadly, the framework assesses charity’s conduct as a whole

But looks at individual aspects of the charity’s fundraising to see if they give rise to concern or they indicate that the charity has done its due diligence

Overview (con’t)

Defines a number of terms related to fundraising

Provides specific information on how to treat situations where some or all costs

could be allocated to purposes other than fundraising

CRA’s expectation when you contract or partner with someone on your fundraising

Context DQ receipted-donation expenditure (“the 80%

rule”) eliminated in 2010 Budget Now more reliance on fundraising guidance Responsible practice needed by charities to

maintain their good name & avoid re-regulation

Less reason, less excuse for some of the past inadvertence, carelessness, recklessness

Background

This area has at times been prone to market failure b/c of unequal bargaining between under-resourced charities and their boards & the professional fundraising community

CRA has jurisdiction over charity fundraising as part of the federal government’s authority over taxation

But the Constitution also gives provinces authority to regulate charity fundraising – so charities must comply with provincial regulation as well as federal rules

Historically few provinces have exercised active oversight, and the federal government has become the default regulator for many charities in the eyes of the public and the sector

Key provincial regulation In Alberta, the Charitable Fund-Raising Act, regulates

fundraising by organizations seeking donations from the public in that province

In Saskatchewan, the Charitable Fund-raising Businesses Act, sets rules for businesses fundraising on behalf of charities

In Manitoba, the Charities Endorsement Act provides an authorization process and sets rules for charities fundraising in that province

In Ontario, the Ontario Public Guardian and Trustee oversees proper use of charitable property and can act against fundraising abuses

Guidance Basics Prohibited conduct

Illegal conduct Fundraising as a main purpose Excessive private benefit Misleading or deceptive practice

Allocation tests Substantial All test Four part test

Exception

Guidance Basics (con’t) Evaluation

Grid

Best practice Planning, procurement, staffing, fundraising oversight,

fundraising evaluation, use of volunteers & free services or resources, disclosure

Concerns/red flags Questionable contracting practices, adequate

documentation, fundraising merchandise issues, high payments to non-charitable parties, commission-based remuneration, fundraising resources vs program resources, misrepresentations

Scope of guidance

Covers most donation solicitations, whether receipted or unreceipted Inclusion of income from cause-related marketing depends on

how arrangement is structured & disclosure

Defers to provincial regulation of gaming & lotteries

Generally doesn’t include fee for service income or related business income

See also CRA checklist on terrorism financing

Definitions

Solicitations Actual ask (money or goods, not volunteers) Research, planning, etc. Advance work, stewardship

Ancillary-incidental purpose Means to an end, not an end-in-itself

Arm’s length/non-arm’s length Close relationship based on kinship or contractual ties (fact-based

determination)

Fair market value Price a good or service would bring in an open and unrestricted market,

between a willing buyer and a willing seller who are both knowledgeable, informed, and prudent, and who are acting independently.

Prohibited conduct Illegal conduct

Fraud or donation scams Illicit tax shelters Contrary to public policy

Fundraising as a main purpose End-in-itself

Excessive private benefit Amounts to non-charitable parties disproportionate

Misleading or deceptive practice Systematic misrepresentation or withholding of info

Allocation

Substantially all test 90% of content for a purpose other than fundraising =

report all costs as non-fundraising on T3010

4-part test (can allocate if no to all) Main objective fundraising? Type of ask: ongoing, repeated, emotive, gift incentives,

donor premiums? Prospective donor audience, readership targeted? Commission-based or other payments tied to number or

amount of donations Exception for activities with bona fide program purpose, as well as

fundraising aspect

Ratios

Intended as a broad guide Applies to charity’s fundraising program as a

whole, rather than to individual activities Even if overall fundraising program is in

acceptable range, there may still be questions about individual events or activities

If ratios are high, charity should be able to explain why and have a plan to lower them in future years

Areas of concern

Sole source fundraising contracts w/o proof of FMV

Non-arm’s length fundraising contracts w/o proof of FMV

Poorly documented fundraising arrangements Use of fundraising merchandise not obtained at

FMV or not at arm’s length or not clearly shown to enhance donations

Areas of concern (con’t)

Activities where most revenues go to non-charitable parties

Commission-based fundraiser remuneration or other payments tied to numbers or amount of donations

Using more resources for fundraising than on programming

Misrepresentations in solicitations, or about the charity’s finances or fundraising program

Good practice Prudent planning

What fundraising program is most suitable for your organization?

Appropriate procurementConsider multiple sources, procurement

process should be proportionate to amounts to be spent

Good staffing Benchmark salaries, there should be reasonable

parity between development and program salaries, in light of seniority and responsibility

Good practice (con’t) Ongoing oversight

Continual monitoring & supervision Adequate evaluation

Assess success & value for money Using volunteers and getting free

services or resourcesLower your costs and enable the charity

to enjoy more of the proceeds Disclosure

Full & accurate

About contracting with non-charities

Generally permitted Always be able to show the contract was at fair

market value Avoid non-arm’s length deals Clearly document procurement processes and

terms of the contract Don’t enter into contracts where there is a

potential windfall for the other party (e.g., commission-based payments where the supplier will make an exorbitant profit if the campaign is highly successful

Questions?

Please use “Chat” function to submit questions

Checkout Charity Central & CRA websites for further information

Not a yes/no in many situations & you can’t always know how a campaign will play out – so carefully consider the possibilities and apply your best judgment

Fundraising Guidance for Registered Charitieshttp://www.cra-arc.gc.ca/tx/chrts/plcy/cps/cps-028-eng.html

Charity Centralinfo@charitycentral.ca

Thank you

Evaluation