CRA’s Guidance of Fundraising in section 8 deals extensively with why you need to allocate expenditures on the T3010 Registered Charity Information Return and sets outs various tests that can help determine whether an expenditure is fundraising, charitable or combination of both.  People who complete the T3010 need to be aware of CRA’s expectations with respect to allocation of fundraising expenditures..

CRA’s Fundraising Guidance provides the following on allocation of fundraising expenditures.

“8. Allocation of fundraising expenditures

Registered charities must report fundraising expenditures on their annual Form T3010. As a general rule, fundraising expenditures include all costs related to any activity that includes a solicitation of support, or that is undertaken as part of the planning and preparation for future solicitations of support. This applies unless it can be demonstrated that the activity would have been undertaken whether or not it included a solicitation of support.
For purposes of reporting on fundraising expenditures, solicitations of support do not include asking for government funding. A solicitation of support includes requests by the registered charity, or someone acting on its behalf, for financial or in-kind donations. It also includes the marketing and sale of goods or services not within the charity’s own charitable programs, but sold specifically to fundraise. This applies even where no donation receipt is issued for the transaction.

To show that an activity would have been undertaken without the solicitation of support, charities must satisfy test A or B below:

A. Substantially All Test

An activity would have been undertaken without a solicitation of support if substantially all of the activity advances an objective other than fundraising. For the purposes of this test, substantially all is considered to be 90% or more.
Generally, this determination will be based on the proportion of the fundraising content to the rest of an activity, as well as the resources devoted to it. However, the prominence of the fundraising content in the activity must also be considered.
If this test is satisfied, the charity may report all the expenditures of the activity on its Form T3010 under charitable expenditures, management and administration, political activity, or other expenditures as applicable.

B. Four Part Test
If the substantially all test is not met, a charity can still show that the activity would have been undertaken without the solicitation of support if the answer to all of the following questions is “no”:
1. Was the main objective of the activity fundraising?
2. Did the activity include ongoing or repeated requests, emotive requests, gift incentives, donor premiums, or other fundraising merchandise?
3. Was the audience for the activity selected because of their ability to give?
4. Was commission-based remuneration or compensation derived from the number or amount of donations?

When the answer to all four questions above is “no”, the charity may allocate a portion of the costs as non-fundraising expenditures and a portion as fundraising expenditures on its annual Form T3010.
If any of the answers to the four questions above is “yes”, all costs must be reported as fundraising expenditures, unless the exception below applies.

Exception
Even if an activity would not have been undertaken without the solicitation of support, charities may still be allowed to allocate a portion of the costs other than to fundraising, if the activity furthers one of the charity’s purposes. The CRA recognizes that, in certain circumstances, an event or activity may serve multiple purposes—for example, as a way to advance its charitable programs and to raise funds for the charity.
Examples.
The CRA only considers that an event or activity could advance an organization’s charitable programming when it is designed to prompt an action (other than the giving of a donation or other financial support) or a change in behaviour. The event or activity should also reach a significant portion of the charity’s stakeholders other than its current or prospective donors, or clearly exhibit greater emphasis on helping beneficiaries than on obtaining financial support.
Note: The CRA generally does not consider raising awareness of a charity’s mandate or work, when it us carried on in conjunction with fundraising through non-charitable third parties (such as for-profit telemarketing, direct mail or canvassing companies), to qualify for the exception. So, charities must allocate costs for such activities to fundraising expenditures.

8. Allocation of fundraising expenditures – More Background
a) Substantially all test
Generally, the “substantially all” determination will be based on the proportion of the fundraising content to the rest of an activity. For the purposes of this test, substantially all is considered 90% or more. However, in some cases the prominence of the fundraising content in the activity, as well as the resources devoted to it, must be considered.

Example 1
The executive director of a charity gives a speech about a charity’s research findings to a group of stakeholders with an interest in the research. The speech concludes with contact information and a brief invitation to learn more about the charity’s work or, if audience members choose, make a donation. In this case, the substantially-all test has been met and none of the costs of the speech (for example, the executive director’s time and travel) have to be treated as fundraising expenditures.

Example 2
A ¼-page solicitation for donations for a church project is included in a four-page leaflet for a church service along with staff contact information and the schedule of church services. In this case, the “substantially all test” has been met and none of the costs of the leaflet (staff time, paper, or printing) need to be attributed as fundraising expenditures.
Sometimes the proportion of costs spent on the fundraising content is relevant in determining whether the activity would have been undertaken without a solicitation of support. Where the resources spent on the fundraising component of an activity exceed 10% of the total cost of the activity, the CRA considers that the activity would not have been undertaken without a solicitation of support and the “substantially all test” is not met.

Example 3
Program staff and fundraising staff both work on an event. The fundraising staff working on the project earn a higher salary that the program staff. In this case, the resources used on the fundraising element of the event are more than 10% even though the time devoted to the fundraising element by the fundraising staff did not exceed 10% of the total time devoted to the project. In this situation the “substantially all test” is not met.
Sometimes the prominence of the fundraising content is relevant in determining whether the activity would have been undertaken without a solicitation of support.

Example 4
A charity broadcasts a television program or commercial featuring a repeated or continuing fundraising solicitation across the bottom part of screen. Based only on the time it appears and the space it uses, the solicitation may make up 10% or less of the content, but because of the prominence it will be considered to represent more than 10% of the activity. In this situation the “substantially all test” is not met.

Example 5
A charity’s Web site has 10 pages, but the initial page is used extensively to solicit donations or provide information on giving opportunities. Program and other information about the charity only appear after this material. The prominence of the fundraising materials relative to the other content represents more than 10% of the activity. In this situation the “substantially all test” is not met.

Note
For fundraising activities involving non-charitable partners, the charity should allocate whatever resources it contributes to the initiative as fundraising expenditures. It should do so even if the partner groups contribute more than 90% of the resources used for the activity.

b) Four-part test
To assist in determining whether or not a particular activity should be reported as fundraising, the CRA has developed four key questions that a charity should ask itself. If the charity can answer no to all four questions, the activity is not considered to be fundraising.
1. Was the main objective of the activity fundraising?
2. Did the activity include ongoing or repeated requests, emotive requests, gift incentives, donor premiums, or other fundraising merchandise?
3. Was the audience selected because of their ability to give?
4. Was commission-based remuneration or compensation derived from the number or amount of donations?
Following are additional details and examples that might be useful in considering responses to the four-part test.

Question 1: Was the main objective of the activity fundraising?

A. Do the resources devoted to the fundraising component of the activity indicate that the main objective is fundraising?
Generally, if the largest portion of the resources devoted to an activity relate to fundraising, the main objective of the activity is fundraising, even if some resources are used for other objectives.
As set out in the substantially all test, the amount of resources devoted to an activity is determined by the content and the costs associated with carrying out the activity.
Where the main objective of the activity is fundraising, as a general rule all the costs for the activity must be allocated as fundraising expenditures. Exceptions to this general rule are discussed below.

B. Does the nature of the activity indicate that the main objective is fundraising?
A free public service announcement (PSA) is generally not considered to have fundraising as its main objective.
A paid advertisement is usually considered to have fundraising as its main objective. However, if the content of a paid advertisement focuses primarily on aspects of the charity’s work other than fundraising—such as promotion of the charity’s programs or services to beneficiaries or potential beneficiaries—it will not be considered to have fundraising as its main objective.
An infomercial as defined and used for Canadian Radio-television and Telecommunications (CRTC) purposes, is considered to be predominantly fundraising.
The CRA considers telemarketing as defined and used for CRTC purposes as predominantly fundraising.
Certain undertakings are always considered to be fundraising, such as:
• activities with content related to charitable gaming; and
• activities with content related to products or services being sold as a fundraiser by or on behalf of the charity.

Content: Sometimes considered to be fundraising
The content of certain initiatives that are carried out to fulfill a charity’s purposes may be hard to separate from a charity’s fundraising activity. In such initiatives, the CRA looks for the following features to see if there is a distinct objective other than fundraising, and to assess how much of the content relates to that objective:
i. Advancing the programs, services, or facilities offered by the charity
Generally, an activity whose main objective is to advance the programs, services, or facilities offered by the charity will provide information or content that furthers the operation of the programs, services, or facilities other than through obtaining donations. As well, such an activity will focus primarily on beneficiaries or potential beneficiaries of those programs, services, or facilities.

Example 1
A charity for disabled adults sells tickets for a performance in which its beneficiaries participate for therapeutic reasons. The charity produces materials to promote the event to the public (including, but not limited to, its beneficiaries). The production costs associated with the event may be treated as charitable program expenditures (assuming other aspects of the four-part test are satisfied). Costs associated with promoting the event to the public would be treated as fundraising. If tickets are free, none of the costs would be considered fundraising.

Example 2
A leaflet promotes participation in a community health centre program and is distributed door-to-door in the centre’s catchment area. Costs for the resources devoted to promoting the centre’s programs are considered charitable expenditures, since they further the group’s charitable purposes.
Where a charity profiles its programs, services, or facilities in order to encourage donations, related expenditures are treated as fundraising.

ii. Raising awareness of an issue
An activity intended to raise awareness of an issue among the general public, or a segment of the public, may be considered to advance a charity’s programs, services, or facilities if it falls within the charity’s mandate to bring the issue to the public’s attention. This can be because the charity includes raising awareness of a particular issue in its purposes or because it has expertise on a matter of public concern.

Example
A charity purchases a newspaper advertisement to make the public aware of the findings of a research report on a public policy issue. In the text of the advertisement, a fifth of the ad space includes a message saying that further research is planned and giving contact information for those who would like to contribute. The main objective of the activity is to increase public awareness, not to fundraise.
iii. Providing useful knowledge to the public or the charity’s stakeholders about the charity’s work or an issue related to that work
As part of its work, a charity may occasionally seek to engage the public or its stakeholders in ways other than informing them of its programs, services, or facilities. To do so, it may undertake activities whose main objective is to prompt an action or change a behaviour related to its mandate. To be considered as prompting an action or changing a behaviour related to a charity’s mandate, the activity must have a specific connection to the organization’s charitable purpose(s) and be directed at beneficiaries or potential beneficiaries. The activity should focus on particular conduct relevant to the audience and not just provide information about the general operation of the charity (for example, profiling its past achievements or current work and its value).

Example 1
A charity mandated to work for the prevention of cancer might publish information explaining the benefits of regular testing. This would not be considered fundraising.

Example 2
A community health centre might promote a change in behaviour by providing information on the importance of exercise or the value of a healthy diet. This would not be considered fundraising.
iv. Being transparent and accountable for its practices by providing information about its structure, operations, or performance to the public or its stakeholders
A charity may, as a regular practice, publicly release documentation about its performance—for example, an annual report, financial statements, or other information. As part of this process, it may devote a small portion of this material to acknowledgement of donors and/or to highlighting its need for ongoing support. Because this acknowledgement and/or appeal are part of a broader effort by the charity to be transparent and accountable, the main objective of the activity is not considered to be fundraising.
Generic branding (that is, activities focusing on the general promotion or marketing of the charity’s name and logo, image or past work) that occurs outside the charity’s reporting to the public as part of its transparency and accountability efforts is usually considered fundraising because it tends to be accompanied by an explicit request for contributions or to be undertaken to prepare for a future request.
Branding or promoting the charity through cause-related marketing is considered fundraising, and any costs the registered charity incurs with such initiatives are considered fundraising expenditures.

Question 2: Did the activity include ongoing or repeated requests, emotive requests, gift incentives, donor premiums, or other fundraising merchandise?
A. Are solicitations ongoing or repeated?
Frequently repeated or ongoing solicitations of support within an activity are a trait of fundraising. Frequency is assessed in relation to the duration or scope of the activity. An ongoing request does not have to occur throughout the activity, but can be a repeated or prolonged request. If ongoing or repeated requests are used, as a general rule, the entire activity will be considered fundraising.
Normally, in activities that would be undertaken without a solicitation of support, solicitations will be balanced with the other content of the activity, and will not be given more prominence.
B. Are requests emotive?
An emotive request is information that appeals primarily to emotion. Messages or content giving more prominence to the circumstances or hardship of beneficiaries or potential beneficiaries of the charity’s work than to the work itself are considered emotive. Telethons are usually considered fundraising because of their reliance on emotive appeals. If a charity uses an emotive appeal, the activity will be considered fundraising.
C. Are gift incentives, premiums, or other fundraising merchandise offered?
The availability of any gift incentive, premium, or other merchandise to donors or prospective donors, regardless of its treatment for receipting purposes, will, as a general rule, result in the activity being considered fundraising.

Question 3: Was the audience selected because of their ability to give?
Audiences selected based on the likelihood of support may lead to an activity being considered fundraising.

Example 1
A health charity purchases a donor list from another health charity, and approaches those on the list to make an appeal for members, volunteers, and financial support. Since the list was acquired because of the donation history of the contacts on the list and the likelihood of their having an affinity with a second health charity, the appeal is considered fundraising.

Example 2
A charity canvasses only a specific part of a city because the residents in that neighbourhood are wealthier than those in other areas of the city, even though its programming is offered on a city-wide basis. The targeting of the audience means the activity is fundraising.
If the audience for an activity consists exclusively of beneficiaries or potential beneficiaries of the charity’s work or a significant number of the charity’s stakeholders other than donors, then—unless there are other indicators of fundraising—it is considered to have been chosen for a reason other than fundraising.
Where a medium is chosen for an activity because it attracts an affluent audience rather than those with a clear interest in a charity’s programming, the activity is considered to be fundraising.

Question 4: Was commission-based remuneration or compensation derived from the number or amount of donations?
How a charity calculates payment for an activity also indicates whether or not the activity is fundraising. If payment of commissions or other compensation is tied to the amount or number of donations, the whole activity is considered fundraising.
However, if compensation is tied to work completed (rather than to success in obtaining contributions), and there is a main objective other than fundraising, the activity will not necessarily be considered to be wholly fundraising.
Example
A community health centre sends a direct mail distribution about its programs and services to all members of the public residing in a geographically defined area (the catchment area of the health centre). If the activity’s main objective was to share information on programs and services, and payment for the activity was not tied to fundraising success, then the direct mail distribution would not necessarily be considered wholly a fundraising activity, even though it might have a fundraising element.
Exceptions to allocation of fundraising expenditures
The CRA recognizes that, in certain circumstances, an event or activity may serve multiple purposes—for example, as a way to advance a charity’s programs and a means of raising funds for the charity. This might be where:
• the charity promotes an event or activity where revenues are raised based on the charity’s work with its beneficiaries, such as the sale of goods from the operation of a sheltered workshop involving persons with disabilities;
• the charity mounts an event or activity featuring its beneficiaries for treatment purposes or to foster their skills or well-being, such as a concert performance by autistic children or an endurance race to build the stamina of cancer survivors; or
• the charity ties a fundraising appeal to a political activity allowed under the Income Tax Act (i.e., non-partisan and to which less than 10% of the charity’s resources are devoted), such as mounting a public awareness campaign about a policy issue.

The CRA considers that an event or activity advances a charity’s charitable purpose(s) where it can be shown to prompt a change in behaviour or an action other than the giving of a donation or other financial support. The event or activity should also reach a significant portion of the charity’s stakeholders other than its current or prospective donors, or clearly exhibit greater emphasis on helping beneficiaries than on obtaining financial support.
Reported fundraising expenses on a charity’s Form T3010 may be recalculated by the CRA based on its assessment of the charity’s actual fundraising costs. Where a charity knowingly or negligently understates its fundraising expenses, this is taken into account in assessing whether the charity has acted reasonably. Inaccurate reporting is also grounds for compliance action under the Income Tax Act.[Footnote 7]  It should be noted that this assessment of fundraising is separate and independent of the requirement that registered charities satisfy the disbursement quota set out in the Income Tax Act.”

To review the CRA Fundraising Guidance see “How do I find the CRA Guidance on Fundraising for Canadian charities?