All charities registered under the Income Tax Act are required by law to devote their resources to exclusively charitable purposes and activities. Although a charity can use some of its resources for fundraising to support the charitable activities that further its charitable purposes, it is the CRA’s position that fundraising is not a charitable purpose in itself or a charitable activity that directly furthers a charitable purpose.
As a general rule, fundraising is any activity that includes a solicitation of present or future donations of cash or gifts in kind, whether the solicitation is explicit or implied.
Fundraising by registered charities must be conducted within legal parameters. Fundraising is acceptable provided it is not:
- a purpose of the charity (a collateral, non-charitable purpose);
- delivering a more than incidental private benefit (a benefit that is not necessary, reasonable, or proportionate in relation to the resulting public benefit);
- illegal or contrary to public policy;
- deceptive; or
- an unrelated business.
When evaluating a charity’s fundraising activities, the CRA will consider a range of indicators and factors, including the following:
- resources devoted to fundraising relative to resources devoted to charitable programs;
- fundraising without an identifiable use or need for the proceeds;
- the charity’s fundraising expenses to fundraising revenue ratio;
- inappropriate purchasing or staffing practices, including:
- purchases of fundraising merchandise or services that do not increase fundraising revenue,
- paying more than fair market value for fundraising merchandise or services, and
- sole source or not-at-arm’s length contracts with suppliers or service providers;
- activities where most of the gross revenues go to contracted non-charitable parties;
- commission-based fundraiser remuneration or payment of fundraisers based on the amount or number of donations;
- misrepresentations in fundraising solicitations or in disclosure about fundraising costs, revenues or practices;
- fundraising initiatives or arrangements that are not well documented;
- the size of the charity;
- causes with limited appeal;
- donor development programs; and
- involvement in gaming activities.
Charities that engage in unacceptable fundraising cannot be registered under the Income Tax Act because they are not constituted and operated exclusively for charitable purposes and devoting their resources to charitable activities. A registered charity that engages in unacceptable fundraising is liable to sanctions or the revocation of its registration.