In its Fundraising Guidance, CRA discusses when ” Conduct that results in more than an incidental or proportionate private benefit to individuals or corporations”

“c) Conduct that results in more than an incidental or proportionate private benefit to individuals or corporations

Fundraising activities that result in more than an incidental or proportionate private benefit are prohibited and may result in revocation of registered charity status.

Although charities cannot be established to confer private benefits, some private benefit may arise in the course of pursuing charitable purposes. Any private benefit to individuals or corporations is only acceptable as an incidental and proportionate by-product of the activity undertaken to fulfill a charitable purpose.

Private benefit is generally incidental and proportionate where the amount or percentage of gain to individuals or corporations is not excessive relative to the benefit to the public. As well, private benefit must be necessary to be considered incidental. Please refer to “Factors Negating Charitable Registration – Existence of a Private Benefit” in Guide RC4143, Registered Charities: Community Economic Development Programs.

Example 1
Registered charities sometimes enter into fundraising contracts that provide commissions or a percentage of the proceeds from solicitations. Where these arrangements result in a third party enjoying a benefit exceeding fair market value for the work it does, the private benefit will not be incidental.

Example 2
Registered charities sometimes purchase merchandise to offer as gift incentives or donor premiums during fundraising activities. Charities should satisfy themselves that any private benefit associated with such purchases is incidental. To qualify as incidental, private benefit must be necessary. In determining if a private benefit is necessary, the CRA may consider whether the charity is dealing at arm’s length with the supplier and whether it can be shown that distributing the item increases the net amount or number of donations.”

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