The Charities Directorate Canada Revenue Agency (CRA) released draft guidelines concerning the fundraising activities of registered charities in April and June 2008.

In articles written about the draft guidelines at that time, we identified a number of issues and concerns which we felt were raised by the policy document released by the CRA. In particular, we raised concerns about:

  1. the presumption that no fundraising expenses could be considered as charitable expenditures;
  2. the one-size-fits-all approach to expenditures incurred in the context of fundraising;
  3. the negative inferences that seemed to apply to charities that hire third party fundraisers;
  4. the fact that it appeared to be directed more at preventing tax shelter abuses and the small percentage of truly offensive behaviours relating to fundraising rather than working with the sector to enhance clarity around these issues and improve transparency and accountability of the sector to the Canadian public in this regard; and
  5. the fact, that the proposed “categories” of acceptable and unacceptable fundraising ratios were judgemental and ignored the realities faced by organizations that rely on charitable donations to pursue their charitable missions.

CRA embarked on a lengthy consultation process on this draft policy and it should be commended for doing so. Officials confirmed that they had received more input on this document than any other draft policy previously posted for comment. The final document, a Guidance on Fundraising by Registered Charities (CPS – 028) was released in June 11, 2009. As finalized, it reflects comments provided by the sector and responds in some part to the concerns and issues raised. The final Guidance on this topic can be found at: http://www.cra-arc.gc.ca/tx/chrts/plcy/cps/cps-028-eng.html

As released, the document is in the form of a Guidance rather than a policy. It is a much improved document which recognizes that expenditures on fundraising to support charitable work are necessary and required.

The Guidance states that its purpose is to provide information to charities and to explain how the CRA looks at expenditures relevant to fundraising on audits. It is not intended to be a new ‘policy’, but rather it confirms existing practices currently followed by the Directorate. The document clarifies that this is a guidance tool for charities to use and consider when completing the Form T3010 Annual Return and when considering the treatment of fundraising expenditures.

One area of significant improvement is in the discussion of how the CRA evaluates fundraising activities of individual charities. In the first draft, the CRA had included what the sector began to call a ‘grid’, which relied on the ratio of fundraising costs to fundraising revenues in a fiscal period and went on to categorize the ratios as acceptable or unacceptable. The ‘grid’ has been substantively revised. The Guidance acknowledges that the sector is diverse and that fundraising effectiveness will vary between organizations. It clarifies how the CRA would approach these ratios at different levels and that the ratios are not by themselves generally evidence of acceptable or unacceptable behaviour. The Guidance also contains best practices and identifies areas of concern that could lead to further review.

The background paper which supports the Guidance on fundraising by registered charities is twenty-two pages long. It contains examples, questions and answers about specific issues that may arise. As drafted, we remain somewhat concerned that auditors will be required to use discretion in their review of whether a charity is incurring appropriate expenditures and using their assets effectively. One can imagine that some organizations may face difficult auditors who have less experience with fundraising. Auditors need to remember that one has to consider the overall circumstances of an organization to properly assess whether the expenditures are reasonable.

However, one has to balance that concern with the fact that historically, charities have had great difficulty grappling with how to deal with expenditures related to fundraising. It is hoped that this Guidance will provide some explanation and certainty for organizations when looking at fundraising activities and the expenditures to be incurred. It is also hoped that it will contribute to a greater understanding and more realistic expectations among the Canadian public about the costs of fundraising, particularly for organizations that rely solely on donor dollars to operate.

Finally, one could argue that the underlying message being delivered by the CRA to registered charities is that transparency and accountability to your donor public is critical. To the extent that organizations may be concerned that the information provided on their Form T3010 Annual Return does not explain the whole story about their fundraising activities, CRA has a response: ensure the full story is told on your organizations website so your donors understand the nature of your organization’s activities. We recommend that in appropriate circumstances, consideration be given to posting an upfront disclosure about fundraising and the necessary expenditures on your website or in the documentation produced for donors to avoid any misunderstanding about the narrow information provided by the Form T3010.