Are there rules about fundraising by registered charities?
Yes. While raising money is important for registered charities, the law says that fundraising cannot become a charity's main purpose. It can only be a way to carry out other activities that the law considers charitable.
Also, fundraising expenses must be kept reasonable in relation to the money fundraising generates.
The Canada Revenue Agency has guidelines on fundraising practises.
Since registered charities sometimes use business activities to raise money, the guidelines should be read along with the rules on what kind of business activities these charities can conduct. To learn more about the rules on business activities, consult our article Rules Registered Charities Must Follow.
Also, charities raising money through lotteries, bingos, charity casinos and other similar activities should make sure they follow provincial rules on these activities. To find out more about the rules in Quebec, consult the website of the Régie des alcools, des courses et des jeux.
Are there limits on what registered charities can spend on fundraising?
Yes. Since fundraising is not recognized as a charitable activity under the law, the Canada Revenue Agency has issued guidelines on how much charities can spend on fundraising in relation to the money it brings in. The money generated by fundraising is also called fundraising "revenues".
Spending above the amounts in the guidelines could prompt the Canada Revenue Agency to review a charity's fundraising practises. The amounts listed are calculated on the basis of overall spending on fundraising during a fiscal period, not individual fundraising events.
Here is a very general idea of the guidelines:
- fundraising costs less than 35% of fundraising revenues: unlikely to raise concerns
- fundraising costs between 35% and 70% of fundraising revenues: the agency will look at the trend over several years to see if it is moving higher.
- fundraising costs over 70% of fundraising revenues: raises concerns. The charity will be asked to provide an explanation. May be considered unacceptable.
In applying these guidelines, the Canada Revenue Agency considers many factors, including the following:
- The size of a charity can affect how efficiently it can raise money.
- It can be difficult to raise money for some causes, resulting in higher fundraising costs.
- There is sometimes a justified gap between fundraising efforts and when a charity actually receives money.
- Gaming activities often have ratios of fundraising costs to revenues of 70% or higher, so the general rule of %70 does not aply to these activities.
What counts as "fundraising"?
As a general rule, fundraising includes:
- any request for cash or non-cash (in-kind) donations, even if no official tax receipt is issued
- selling things or services that are not within the charity's normal programs (for example, a church selling chocolate bars)
- research and planning for fundraising
- hiring and training fundraising staff or outside fundraisers
- giving donors gifts, unless the gifts are small
- giving donors access to special information, services or privileges to encourage future donations
- branding or promoting the charity
- activities related to gaming, such as lotteries and bingos
- fundraising by the charity itself or by someone else on behalf of the charity
- membership programs that give substantial benefits to members
- anything for which an official tax receipt is issued
The following are not considered to be fundraising:
- requests for funding from government or other registered charities
- operation of a "related" business (To learn more, consult our article Rules Registered Charities Must Follow.)
- recruiting volunteers
Are some fundraising practices prohibited?
Some practises are not allowed. Other practises will raise concerns and could cause the Canada Revenue Agency to take a closer look at a charity's fundraising activities.
1) Misleading donors about the following:
- which charity will get a donation
- where a charity operates
- whether the charity has hired outside fundraisers
- how those fundraisers are paid and what a charity does
- the amount of money raised that will go toward charitable work
2) Giving substantial private benefit to someone. This could include the following:
- Giving a big percentage of money raised to a professional fundraiser outside a charity.
- Buying expensive gifts for donors from a supplier related to someone who works for the charity.
3) Fundraising that becomes the main purpose of a charity.
4) Practises contrary to government rules, such as the telemarketing rules of the Canadian Radio-television and Telecommunications Commission.
May Raise Concerns
1) Fundraising without an identifiable use or need for the money.
2) Hiring an outside person to fundraise when only that person was given a chance to submit a proposal to do the work (also called a "sole-source" contract). If a charity uses this kind of contract, it must be ready to show it paid no more than the normally-accepted rate for the work.
3) Hiring an outside fundraiser who has a personal or business connection to someone at the charity. This is also called a "non-arm's length" contract. If a charity enters into this kind of contract, it must be able to show it paid no more than the normally-accepted rate for the work.
4) Fundraising activities or arrangements that are not well documented.
5) Buying fundraising merchandise, when those purchases
- are not at arm's length
- are at more than the normally-accepted price, or
- are not done to increase fundraising revenues.
6) Giving most of the proceeds of the fundraising to non-charitable people or organizations, for example, paying $5 for a chocolate bar to make a 10¢ profit on each.
7) Paying a fundraiser based on the amount or number of donations (a commission, for example) rather than based on effort.
8) Devoting more resources to fundraising than to the charity's programs.
9) Not being truthful about fundraising costs, results or practices, even if the information presented was not fraudulent or illegal.
One reason the Canada Revenue Agency will take a closer look at these practises is to make sure people involved in fundraising, either inside or outside the charity, don't get too much personal benefit from fundraising activities.
What are considered to be good fundraising practices?
Although they are not required by law, the Canada Revenue Agency suggests charities put these practises into place to help ensure their fundraising activities respect the agency's guidelines:
- Research the costs and revenues that can be expected from various fundraising activities.
- Put into place procedures for purchasing fundraising services or merchandise to ensure the charity does not overpay.
- If fundraising is done by a charity's own staff, make sure employees paid for this work do not receive excessive benefits.
- Ensure adequate control over fundraising activities and practises.
- Evaluate fundraising activities, including their cost effectiveness.
- Keep detailed records related to fundraising activities.
- Disclose fundraising practises, costs and revenues to donors and the public in general.
- Have a policy on the use of any reserve fund.
How do registered charities report spending on fundraising?
Most spending on fundraising must be reported separately from spending on charitable activities on the annual information return (form) registered charities must file with the Canada Revenue Agency.
To see what must be reported as fundraising spending, see the question "What counts as fundraising?".
Some activities might be partly related to fundraising and partly related to the charity's usual activities. In these cases, a charity must report its spending according to these rules:
- 90% or more of the activity was related to fundraising > 100% of spending must be reported as fundraising
- less than 90% of an activity is related to fundraising > the charity can divide the spending between fundraising and other categories, such as administration, charitable activities, etc.
For more information about reporting fundraising spending, see the Canada Revenue Agency's fundraising guidelines.
Our video Registered Charities - Rules on Business Activities
This article explains in a general way the law that applies in Quebec. This article is not a legal opinion or legal advice. To find out the specific rules for your situation, consult a lawyer or notary.