How is fundraising defined by the Charities Directorate in their Fundraising Guidance?

May 01, 2010 | By: .(JavaScript must be enabled to view this email address) Mark Blumberg
Topics: Fundraising Guidance for Registered Charities

CRA has a particular definition of fundraising in the guidance which includes certain elements and excludes certain elements.

In the Fundraising Guidance CRA notes:


“5. What is fundraising?
As a general rule, fundraising is any activity that:
• includes a solicitation of support for cash or in-kind donations (solicitations of support include sales of goods or services to raise funds);
• is part of the research and planning for future solicitations of support; or
• is related to a solicitation of support (efforts to raise the profile of a charity, donor stewardship, donor recognition, etc.).

Fundraising includes activities carried out by the registered charity, or someone acting on its behalf.

Fundraising does not include requests for funding from government or from other registered charities, or the operation of a related business as defined in the Income Tax Act.

Recruitment of volunteers is not considered a solicitation of support.

Fundraising includes activities carried out by the registered charity, or someone acting on its behalf.
In circumstances where a receipt is issued for any part of a transaction, the activity is deemed to be a solicitation of support and therefore the costs associated with the entire activity must automatically be allocated to fundraising expenditures.
When should costs associated with donor recognition be reported as fundraising?
Donor recognition is the acknowledgement or thanking of a person who has made a gift. The costs of gifts or other forms of acknowledgement to thank donors must be reported as fundraising expenses unless they are of nominal value. The CRA considers recognition with a per-donor cost of $75 or 10% of the donation (whichever is less) as nominal. When donor recognition expenses are nominal and are not reported as fundraising expenses, they must nevertheless still be reported as administrative expenses.
Examples
Publishing a list of donors who gave $1,000.00 to a charity in a newspaper may be an administrative expense only, provided the cost per name was less than $75.00, as $75.00 is the lesser amount between 10% of the donation ($100.00) and $75.00.
A charity sends a gift to donors that cost the charity $20.00 each. If the charity only sends the gifts to donors who contribute $200.00 or more, the expense is administrative only.
However, if $20.00 gifts are sent to donors who contributed less than $200.00, these must be reported as fundraising expenses, as the cost of the recognition for these gifts exceeds 10% of the donation amount.

Is donor stewardship a solicitation of support?
Donor stewardship occurs when a charity invests resources in relationships with past donors to prompt additional gifts. This could include providing donors with access to information, services, or privileges not available to others. These activities are considered solicitations of support.
Example
An arts charity invites only people who have given gifts above a certain amount to a private reception with the artists after a performance. The event is considered to be a solicitation of support.

When is the sale of goods or services a solicitation of support?
The sale of goods or services by a registered charity is always a solicitation of support except where:
a. the provision of the good or service serves the charity’s beneficiaries, directly fulfills a charitable purpose, and is sold on a cost-recovery basis, or
b. it is a related business as defined in the Income Tax Act. For more information on the meaning of related business, please refer to Policy Statement CPS-019, What is a Related Business?.
Example 1
A local community centre for seniors runs a fitness course and charges a fee to cover its costs. This is not a solicitation of support.
Example 2
A youth group sells chocolate bars at a local shopping mall and will use the money it makes to support a trip it is planning. This is considered a solicitation of support and treated as fundraising. The costs for the chocolate bars and costs related to promotion and distribution are fundraising expenses and the revenue received from the sale is treated as fundraising revenue.
Example 3
A church group runs a yard sale to help pay for some renovations to its building. This is considered a solicitation of support and treated as fundraising.
Where a charity offers a good or service as part of the solicitation message, to prompt a donation, this is considered to be a solicitation of support.
Example 1
A charity sends key chains or address labels to members of the public to encourage them to donate as part of a direct mail campaign. This is considered a solicitation of support. The costs are to be reported as fundraising expenses.
Example 2
A public television station offers its viewer a boxed DVD set of one of its popular series if they agree to make a donation of a certain size. This is considered a solicitation of support.
When are membership programs considered to be fundraising?
Some charities are membership-based. Membership programs can be considered a solicitation of support if membership is associated with substantive benefits beyond being eligible to vote at a general meeting and/or receive a newsletter.
Example
Membership programs that require a donation to join, or where there is extensive use of donation incentives or premiums to promote joining as a member, are considered to be fundraising. Costs associated with these membership programs are considered fundraising expenditures.

Collaboration with third parties to sell goods and services
Sometimes a charity will partner or collaborate with a business or other non-charity to offer a good or service on the basis that a portion of the proceeds will be paid to the charity. Often, most or all of the expenses incurred related to this type of initiative are paid by the third party.
Where the charity incurs costs related to such initiatives, they are considered fundraising expenditures.
Example 1
A charity creates a page on its Web site to describe a partnership where a percentage of the sales of a restaurant on a certain day will be given to the charity and to tell people where and when they can participate. The cost of that page of the Web site should be treated as fundraising.
Example 2
A charity includes a complimentary page of advertising in its regular publication to its members offering an affinity credit card from a particular company as part of an arrangement where the company pays the charity a percentage fee on transactions where the card is used. The cost of the advertisement is considered a fundraising expense.”


To review the CRA Fundraising Guidance see “How do I find the CRA Guidance on Fundraising for Canadian charities?” at
http://www.canadiancharitylaw.ca/index.php/blog/comments/how_do_i_find_the_cra_guidance_on_fundraising_for_canadian_charities/

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Mark Blumberg is a partner at the law firm of Blumberg Segal LLP in Toronto and works almost exclusively in the areas of non-profit and charity law.

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