Does Your Charity's Fundraising Comply with CRA Rules?

TL;DR: Under CRA Guidance CG-013, Fundraising by registered charities, fundraising is any activity that asks for a present or future gift of cash or non-cash property, whether the ask is explicit or implied. CRA accepts fundraising unless it becomes a purpose of the charity, gives more than incidental private benefit, is illegal or contrary to public policy, is deceptive, or is an unrelated business. Charities report fundraising costs on line 5020 of the T3010. A fundraising ratio under 35% is unlikely to raise CRA questions. Above 70%, the charity must justify its spending.

If you're an executive director or treasurer planning a gala, a golf tournament, a direct-mail appeal or a peer-to-peer campaign, this guide explains how CRA judges your fundraising and how to report the costs on your T3010.

What counts as fundraising under CRA rules?

Fundraising is any activity that asks for present or future gifts of cash or non-cash property, or that sells goods or services to raise money, whether the ask is explicit or implied (CG-013 ¶17). It includes work done by your board, staff and volunteers, and work done by anyone you contract to fundraise for you.

Fundraising includes:

• direct asks: canvassing, telemarketing, direct mail, email and online campaigns, and events such as galas, auctions, runs and walks
• donor stewardship (building relationships with past donors), membership programs with material perks, and corporate sponsorship programs
• planning and researching fundraising, hiring and training fundraisers, and donor recognition that is more than nominal
• selling goods or services to raise money, including cause-related marketing with a business partner

These activities are not fundraising under CG-013:

• asking other registered charities or governments for grants or funding (report these costs as administration)
• recruiting volunteers for the charity's general operations or a related business. Recruiting volunteers specifically for a fundraising drive is fundraising.
• running a related business, meaning one that is linked and subordinate to your charitable purposes, or that is run substantially by volunteers (ITA s. 149.1(1); CRA Policy CPS-019)
• selling goods or services that serve your beneficiaries, directly further a charitable purpose and are priced only to recover costs

When does CRA consider fundraising unacceptable?

CRA treats fundraising as unacceptable when it does any of the following (CG-013 ¶30):

1. Becomes a purpose of the charity. Fundraising must support your charitable work, not become a goal in its own right. Raising money with no identified use or need for it is a warning sign.
2. Gives more than incidental private benefit. A person or business gains more than a necessary, reasonable and proportionate side benefit. An example is a contractor who keeps most of the gross revenue.
3. Is illegal or contrary to public policy. Examples include issuing improper receipts and breaking telemarketing rules. Courts have found that contracts giving a third-party fundraiser 70% or more of funds raised, without telling the public, are contrary to public policy.
4. Is deceptive. This includes misleading donors about which charity receives the gift, how gifts will be used, or what fundraising costs.
5. Is an unrelated business. Charitable organizations and public foundations may run only a related business. Private foundations may not carry on any business.

What happens if CRA finds unacceptable fundraising? CRA usually starts with an education letter or a compliance agreement. It can also impose monetary penalties (ITA s. 188.1), suspend the charity's receipting privileges (s. 188.2), or revoke its registration (s. 168(1)(b)). CRA's sanctions guidelines explain how it escalates between these steps.

How do you allocate the costs of an activity that mixes fundraising with other goals?

CRA uses a 90% threshold in both directions:

• If 90% or more of an activity is fundraising, all of its costs are fundraising.
• If "substantially all" of the activity (90% or more) advances objectives other than fundraising, none of its costs are fundraising.
• Anything in between is pro-rated, meaning costs are split in proportion to content (CG-013, Appendix B).

If CRA reviews your allocation, the charity has to justify it.

To measure the split, look at three things:

• how much of the content is charitable, fundraising or administrative
• the staff, volunteer, financial and property resources spent on each part
• how prominent the fundraising ask is

Prominence can outweigh size. For example, a donation ticker running across a TV program counts as more than 10% of the activity even if it takes up little screen time.

‍

‍

Is the "four-part test" still used? No. Older articles describe a four-part test for allocating costs. The current version of CG-013 does not include one. Use the three pathways above.

When does awareness content count as charitable? Only when it moves people to take specific action. Under CG-013 ¶126, the content must be factual and detailed enough that the audience can take specific steps that directly further your charitable purpose, and it must encourage them to take those steps. It also has to target people who can act on it and be actively distributed to them. Posting it on your website is not enough.

Under-reporting line 5020, whether knowingly or through negligence, is itself grounds for CRA compliance action (CG-013 ¶122). If you find an allocation error after filing, don't refile the return. Instead, correct it with Form T1240.

What is the fundraising ratio, and what do the 35% and 70% thresholds mean?

The fundraising ratio is your fundraising costs divided by your fundraising revenue for one fiscal period. CRA calculates it from your T3010:

Fundraising ratio = line 5020 (fundraising expenses) ÷ (line 4500 receipted gifts + line 4630 non-receipted fundraising revenue)

Line 4500 includes all receipted gifts, even ones that didn't come from a fundraising activity. Gifts from other charities (line 4510) are not included in the ratio. CRA's Guide T4033 explains what belongs on each of these lines.

‍

‍

The ratio is a screening tool, not a safe harbour. A charity with a 20% ratio can still be non-compliant if its fundraising is deceptive or gives private benefit. A very high ratio for a single event can also draw CRA's attention, even when your overall ratio is low.

Gaming exception: provincial rules often allow lotteries and bingos to run at cost ratios of 70% or more. If your gaming complies with provincial rules, CRA will generally accept the higher ratio (CG-013 ¶99).

Does CRA consider a charity's size, cause or donor-development spending?

Yes. CRA weighs these factors case by case, but none of them makes unacceptable fundraising acceptable (CG-013 ¶89).

• Small charities: CRA generally treats charities with revenue under $100,000 as having a small constituency. It asks whether their costs are reasonable for the community they serve and adequately controlled.
• Causes with limited appeal: a charity working on an unpopular or little-known cause may be allowed higher costs. It must show four things: the cause has limited public appeal, the higher costs result directly from that cause, it researched or tried other methods and chose the most efficient one, and its costs are controlled.
• Donor development: donor acquisition and planned-giving campaigns often pay off in later years. CRA may accept their higher short-term costs if the charity pays fair market value and its costs decline as the program matures.

What best practices lower your CRA risk?

CRA treats documented best practices as evidence of responsible fundraising (CG-013, Appendix C). The core ones are:

• Plan before you spend. Compare expected costs and returns, and consider other methods.
• Evaluate results against CG-013 and sector standards that fit your charity's size.
• Buy carefully. Get three or more bids, benchmark against similar charities, keep contracts short, and include termination clauses.
• Supervise third-party fundraisers. Approve their scripts, monitor receipting, and pay for work performed rather than a share of donations.
• Keep complete records, including board minutes, cost research, signed contracts and a written fundraising policy.
• Disclose costs and revenues to the public truthfully and on time.
• Adopt a reserve fund policy so every campaign has an identified use for the money.

Frequently Asked Questions

Do gala and golf tournament costs all count as fundraising?

Yes. CG-013 ¶115 treats galas and golf tournaments as 100% fundraising. Report all of their costs on line 5020, even if the event includes a short program presentation. Ticket receipts are a separate issue: attendees generally get a split receipt for the amount above the value of the meal or green fees.

Is asking a foundation or government for a grant "fundraising"?

No, as long as the foundation is a registered charity. CG-013 excludes grant requests to other registered charities and to governments, and those costs are reported as administration. Asking a corporate foundation that isn't a registered charity is not covered by this exclusion.

Our ratio is over 35%. Will CRA revoke our registration?

Not automatically. At 35% and above, CRA looks at your average ratio over recent years and at any explanation you provide. Revocation under ITA s. 168(1)(b) follows unacceptable fundraising, not a ratio by itself.

Can we pay a fundraiser a percentage of what they raise?

CRA discourages it. CG-013 treats pay based on results as a sign of possible private benefit and misleading solicitation. Its best practices favour paying for work performed, such as hourly or per-call rates at fair market value. If you do use a commission arrangement, document why, confirm fair market value, and disclose the arrangement to donors.

Do donor thank-you gifts count as fundraising costs?

Only if they're more than nominal. CRA treats recognition costing the lesser of $75 or 10% of the gift per donor as nominal. Nominal recognition costs are reported as administration, and anything above that is fundraising (CG-013 ¶108). For example, a $20 gift sent to donors who gave more than $200 is administration. Sent to donors who gave less than $200, it is fundraising.

We're a small charity. Does CRA take that into account?

Yes. CG-013 recognizes that charities with revenue under $100,000 have smaller donor bases. CRA asks whether your costs are reasonable for your community and whether you control them.

Next step: If your fundraising ratio is over 35%, or you're planning a gala or a third-party campaign, have your allocation method reviewed before you file your T3010. Book a call with B.I.G. Charity Law Group.

Sources: CRA Guidance CG-013, Fundraising by registered charities; CRA Policy CPS-019, What is a related business?; CRA Guide T4033, Completing the Registered Charity Information Return; Income Tax Act ss. 149.1(1), 168(1)(b), 188.1 and 188.2.

‍