CRA fundraising changes: Why you should care
By Andy Levy-Ajzenkopf
August 24, 2009
In June, the Canada Revenue Agency (CRA), after consultations with numerous sector organizations, including Imagine Canada, Health Charities Coalition of Canada, and the Association of Fundraising Professionals, announced the release of new fundraising guidelines for the nonprofit community.
A detailed overview of the nuts and bolts of the document was written up last month on these e-pages by CharityVillage's Fundraising Q&A contributor, Cynthia J. Armour, CFRE. It's a comprehensive article that should be mandatory reading for all sector directors. As Armour writes:
"I would highly recommend that the ED/CEO, board chair, treasurer, and chief development officer (any or all of the above, regardless of the size of your charity) review the document thoroughly to identify what changes might need to be considered regarding your fundraising activities and subsequent expenses. I found the Additional information on Guidance CPS-028, Fundraising by Registered Charities particularly helpful with all their examples."
But to briefly restate the CRA's intentions for the guidelines, here is their preamble:
"This document replaces Policy Statement CPS-001, Applicants that are Established to Hold Periodic Fundraisers, and provides information for registered charities on the current treatment of fundraising under the Income Tax Act and under common law. This guidance offers direction on issues such as the following:
- distinguishing between fundraising and other expenditures;
- allocating expenditures for the purposes of reporting them on Form T3010, Registered Charity Information Return;
- dealing with activities that have more than one purpose; and
- understanding how the CRA assesses what is acceptable fundraising activity, what may preclude registration, or what may result in a sanction, penalty, or revocation.
The document outlines policies and practices that the CRA uses when it reviews annual information returns filed by registered charities and explains the CRA's views on issues relevant to fundraising expenditures. This information should help to ensure that registered charities are aware of the CRA's perspective on fundraising in general and the appropriate treatment of fundraising expenditures. The CRA's auditors use this guidance as a tool when they review Form T3010, or visit a registered charity for an audit. It also confirms to the public that fundraising expenditures are appropriate and in fact necessary for the sustainability of the sector."
So why should sector organizations care? CharityVillage posed the question to some prominent experts, and below are their professional, considered opinions.
Guided by voices
Noted Canadian charity and not-for-profit lawyer and a leading legal voice, Terrance S. Carter, managing partner of Carter's Professional Corporation - he's also a member of the Technical Issues Group of CRA's Charities Directorate representing the Canadian Bar Association - responded:
"The ability of a charity to retain its charitable status in the future may very well depend on whether it can show that it has made reasonable efforts in meeting the requirements of the Guidance." |
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"It is important that registered charities understand the new CRA Guidance on fundraising, as it is expected that charities will need to comply. In this regard, the Guidance outlines four types of prohibited conduct that are grounds for revoking a charity's charitable status, imposing compliance actions, or denying charitable registration. In addition, the Guidance indicates that charities that spend 35% and above - as a yearly ratio of costs to revenue - on fundraising may come under increased scrutiny from CRA," he counsels. "The Guidance also outlines two tests that charities can use to determine whether or not an expenditure is to be reported as a fundraising expenditure. As well, the Guidance not only applies to audits in future years but also to audits of past years. As such, it is important that all registered charities that depend on fundraising, together with their staff and board members, become familiar with the content of the Guidance. The ability of a charity to retain its charitable status in the future may very well depend on whether it can show that it has made reasonable efforts in meeting the requirements of the Guidance."
Though Carter wisely advocates prudence and caution, others responded in a lighter tone.
Celebrate good times
Karen Willson, president of the board of directors for AFP Greater Toronto Chapter, the association's largest chapter worldwide, had the following answer:
"I think the Guideline is very fair. Throughout the [consultation] process, the CRA listened to the AFP and to Imagine Canada, and sought our advice on how to make the guidelines very effective. I believe, for charities, this is another way for us to be accountable to our donors and our agencies," she says.
Willson also points out that the CRA has given charities a bit of flexibility. "In its original proposal [for the guidelines], charities were going to be put in a grid system, where what they spent on fundraising would qualify as either 'acceptable' or 'not acceptable'. Now they've allowed charities to explain why, in a certain year, [they are] spending more on fundraising than in another year. We've moved away from the [idea] that you're not a good charity if you spend more than $0.20 on every dollar for fundraising. They've given a range and now understand that from year to year charities might spend differently on fundraising. That's a huge accomplishment for the sector. There's more flexibility, but at the same time there's also accountability. CRA has now really done their homework on how the charitable sector works and what needs to be in place to ensure that charities are using their funds well."
Willson is already noticing that in the brief time since the guidance was released, sector organizations have had their "nervousness" reduced because of the new, more elastic guidelines.
"All they have to do now is report what their expenses are, and why. And CRA is willing to listen," she says, adding that this fall
AFP and Imagine plan to hold public forums on this issue to "provide charities an opportunity to really understand what the changes are and how they will impact them."
Lastly, for its part, on June 12 Imagine Canada issued a succinct statement on its website in relation to the new guidelines. It reads as follows:
"We share a strong desire to make the sector more accountable and applaud the CRA for their responsiveness to feedback from small and large stakeholders impacted by the policy. The revised policy reflects some of this input and we are pleased that the policy is an improvement on earlier drafts."
Hit the CRA books
The bottom line: Canadian charities seem to have received a gift from the CRA. And it's one they should familiarize themselves with in detail, in order to better serve their clients.
Andy Levy-Ajzenkopf is president of WordLaunch professional writing services in Toronto. He can be reached at andy@wordlaunch.com.
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