CCA Bulletin 28/08

Ottawa, Monday, August 25, 2008

“Contrary to Public Policy”: from

Bill C-10 to Revenue Canada’s Rules for

Fundraising by Registered Charities

Just the Facts

After promising it for several months, Canada Revenue Agency discretely posted on its website

at the end of June draft new rules for registered charities and set a deadline of August 31 for interested parties to react.  The consultation focuses on new policy on fundraising activities by all registered charities.

The document provides a framework explaining how to distinguish between fundraising and other expenditures, and clarifies how to classify and report activities intended both to raise funds and advance charitable programming. It explains when fundraising activities may preclude registration or may result in revocation of registration. It also explains what factors are considered when assessing if the fundraising undertaken by a registered charity puts its registration status at risk.

The policy also addresses how charities can allocate fundraising expenditures and which fundraising activities are ineligible for allocation. The document policy identifies four categories of prohibited conduct by charities;

• Conduct that is illegal or contrary to public policy (emphasis added)
• Conduct that has become a main, prevailing, or independent purpose of the charity
• Conduct that results in excessive or disproportionate private gain by individuals or corporations
• A charity not devoting 100% of resources to charitable ends since the harm arising from the charity's fundraising practice outweighs its public benefit

Analysis

The policy will mean a close re-examination of fundraising activities by all registered charities to ensure that they do not run afoul of the proposed policies if implemented in their current form.

Once again we see the introduction of the famous phrase “ contrary to public policy”, which raised considerable opposition when it was found out almost at the last minute that it was part of Bill C-10, concerning tax credits supporting the production of television programs and movies. As in the latter case, this phrase gives further discretionary powers to Canada Revenue Agency, the Minister and Cabinet and may lend itself to censoring the activities of charities which, while perfectly legal, may not be to the liking of the government of the time

An annual gala performance which raises money for a charity may not be an eligible allocated expense and development costs are certainly questionable activities for charities under these proposed rules. If the performance is related to a charitable activity in the organization’s charter such as providing educational activities to disadvantaged youth or the homeless, it might be acceptable; however the costs of mounting such an activity will be closely scrutinized to ensure that it is consistent with other requirements.

Many arts organizations enjoy charitable status and have used this status to close the gap between public funding, earned revenue and rising operational costs. The objective of the Canada Revenue Agency is notionally to ease the administrative burden of reporting on charitable activities, however, at least initially, these provisions will not likely contribute to this objective.

Tell me more

As mentioned above, the policy addresses how charities can allocate fundraising expenditures and which fundraising activities are ineligible for allocation. To determine this, the onus is on the charity to demonstrate;

A. Substantially all of the resources devoted to the activity advance an objective other than fundraising.

or

B. Four Part Test:

All of the following apply to the activity:

1. The main objective of the activity was not fundraising, based on the resources devoted to fundraising in the activity, the nature of the activity, or the resources used to carry it out.
2. The activity does not include ongoing or repeated requests, emotive requests, gift incentives, donor premiums, or other fundraising merchandise.
3. The audience was selected for reasons other than their ability to give.
4. Commission-based remuneration or compensation derived from the number or amount of donations is not being used.

 The proposed policy does include a quick check list to permit small and rural charities to self-assess their fundraising activities which CRA characterizes as a guideline only. The check list can be found at the end of the Policy document.

What Can I Do?

If your organization currently has charitable status you may wish to review the documents and submit commentary to the Canada Revenue Agency by August 31, 2008. The deadline is short but the need to express your concerns or your suggestions is critical to ensure that the policy reflects the challenges and realities of operating a small charity.

Imagine Canada has prepared briefing notes outlining the many problems it finds in the draft policy paper. The umbrella organization will be putting forward a full-fledged brief to Revenue Canada. Given the short timeframe and the need to focus on the recently discovered cuts of over $ 45 million to arts and culture programs, the Canadian Conference of the Arts intends to send a letter in support of Imagine’s brief and we will raise our concerns with the potential for arbitrariness included in the famous phrase “contrary to public policy”. If your organization would like to support Imagine Canada’s brief, please contact Karen Alebon.

Talking about Revenue Canada: Free telephone-learning sessions on the Registered Charity Information Return (T3010A)

The Charities File, a pan-Canadian project funded by the Canada Revenue Agency, administered by the Centre for Voluntary Sector Research and Development in partnership with the Canadian Federation of Voluntary Sector Networks is now offering telephone learning sessions to representatives of registered charities. 

The purpose of The Charities File is to increase the awareness and capacity of registered charities to file complete and accurate T3010As (Registered Charities Information Returns) on time.  Last year, more than 2500 charities had their charitable status revoked as they did not file their returns.  Many charities also filed returns that contained errors that would not reflect well on the charity’s public image.  Given the increasing attention being paid to issues of accountability and transparency among charities, we are committed to building on the strengths in the sector and helping to preserve the high public trust we enjoy. For further information about this project please visit http://thecharitiesfile.ca/.  To view scheduled dates of upcoming sessions as well as registration please visit http://thecharitiesfile.ca/en/training_events (telephone learning).