Keeping Your Charity's Fundraising on the Right Side of the Line: When Good Intentions Aren't Enough

Think about this scenario. You donate to a cause, something you really care about, and you feel good like you're making a difference.

Yeah. That's the goal. Right?

But then, maybe you wonder, is the way that charity raises the money actually, you know, okay. Does it fit with the good work they're supposed to be doing?

That's a really important question. Yeah. And, the Canada Revenue Agency, the CRA, they've actually set out some pretty clear, boundaries for registered charities in Canada on this.

Exactly. And that's what we're diving into today. We wanna sort of cut through the legal jargon and give you a clearer picture of what the CRA calls unacceptable fundraising.

It's not about, like, playing gotcha with charities.

No. Not at all. It's really about empowering you as someone who gives to understand the playing field, maybe spot potential red flags, and just make sure your donation actually achieves what you want it to.

Right. And for this deep dive, we're leaning on insights from Dov Goldberg over at BIG Charity Law Group Professional Corporation, and also resources from CharityLawGroup.ca. They really know this area.

Okay, great. Let's get right into it. One of the first things the CRA flags is when fundraising almost becomes, well, the main reason the charity seems to exist, more important than the actual mission.

Yeah, that's a fundamental point. Charities are supposed to do good, their primary purpose has to be their charitable activities. You know, helping people, education, the environment, whatever they're focusing.

Because fundraising supports that, but it can't be that.

Exactly. Fundraising is the fuel, not the engine itself. If it looks like an organization is spending all its energy on galas and sales pitches and you're left wondering what do they actually do with the money? That's a problem for the CRA.

It's about that balance then. So, you mentioned something called a collateral non charitable purpose. How does that tie in?

Okay, so that's when a significant side activity, something that isn't charitable in itself, starts taking up a major chunk of the charity's resources or focus.

Even if the profits go to the charity?

Yes. Even then. Let's say a poverty relief charity starts running, I don't know, a huge commercial bakery that requires lots of staff and management time. If that bakery becomes a massive operation, the CRA might say hold on, this looks like a major non charitable business purpose alongside your charitable one. And charities have to be exclusively focused on charitable purpose.

Got it. Keep the eye on the charitable prize. Okay, next up. More than incidental private benefit. This sounds like it's about making sure charity funds don't improperly enrich individuals.

Precisely. Charities exist for the public good, not for private gain. Any benefit that goes to someone connected with the charity, an employee, a director, a supplier has to be strictly incidental.

And how does the CRA define incidental? Is there a test?

There is. Yeah. It needs to be, necessary. Like you actually need that service or person to achieve the charity's goals or fundraise. It has to be reasonable in cost or value and critically it has to be proportionate to the public benefit the charity delivers.

Okay. Give us an example. Maybe with fundraising.

Sure let's say a charity hires an event planner for a fundraising dinner paying them a fair market rate for their work that's usually fine it's necessary probably reasonable and proportionate if the event successfully raises funds.

But if they paid them like triple the going rate or gave them a luxury car as a bonus.

Exactly. Then it starts looking like the private benefit to the planner is outweighing the public benefit from the funds raised. That's more than incidental and it's unacceptable. Excessive fees, lavish perks, those are red flags.

Necessity, reasonability, proportionality.

Got it. Okay, next one seems obvious but still crucial. Illegal fundraising or fundraising that goes against public policy.

Yeah. It might seem like a given but all fundraising absolutely has to follow the law. That covers everything. Fraud laws, provincial gaming rules, if you're doing raffles, consumer protection laws, how you handle charitable property.

And things like donation receipts too. Right?

Definitely. Issuing receipts that are incorrect, maybe inflating donation amounts or just completely fake receipts that's straight up illegal fundraising. And it goes beyond just not breaking the law, doesn't it? Charities need to be careful they aren't being used for illegal things.

Absolutely. They need safeguards. Due diligence to make sure their fundraising isn't somehow facilitating money laundering or in the worst case terrorism financing. They have a responsibility to be vigilant.

Okay. And the public policy part, what does that cover?

Public policy is basically about protecting the public interest based on established government principles. In fundraising, a big area where this comes up is with those third party for profit fundraising companies.

Right, the ones who call you at dinner time sometimes.

Sometimes, yeah. The issue arises when these companies take a massive cut of the donations. Courts have looked at cases where it was 70%, even 80% or more, without clearly telling the donor upfront.

Wow, 70%. So only 30¢ on the dollar actually goes to the charity.

Potentially yes. And the courts, and by extension the CRA, see that lack of transparency as against public policy. Donors have a right to know where their money is going and the public has an interest in donations actually reaching the cause. Deceptive telemarketing tactics also fall into this. It damages trust.

That level of commission definitely highlights the need for transparency, which leads perfectly into the next point: Deceptive fundraising. This feels like it hits right at the heart of why people give.

It really does. Trust is everything in the charitable world. If donors feel misled, that trust evaporates not just for one charity, but potentially for the whole sector. So, any fundraising that misrepresents the truth is considered unacceptable by the CRA.

What kind of misrepresentations are we talking about?

Oh, several kinds. Misleading people about which specific charity actually gets the money. That's a big one.

Or maybe exaggerating what the charity does.

Exactly. Overstating their impact, their geographic reach, the effectiveness of their programs. Also not being clear about using third party fundraisers and how much they're getting paid.

And what about those claims like 100% of your donation goes directly to the cause?

Yeah that can be deceptive too if the charity actually has significant necessary costs for administration or even fundraising itself that aren't being acknowledged. It's about giving donors the full honest picture.

So the keywords are truthful, accurate, complete, and timely information. No smoke and mirrors.

You got it. Transparency is absolutely key. Deception can seriously harm a charity's reputation and ultimately its status.

Okay. Last category to unpack. Fundraising that becomes an unrelated business. This sounds a bit tricky. If the money helps the charity, why would the CRA care if it comes from a business activity?

It's definitely one of the more complex areas. Registered charities generally can't just run any old business even if all the profits are channeled back into their charitable work. The CRA defines a business generally as you know a regular commercial activity carried on with a profit motive.

So a one off bake sale probably isn't a business.

Usually not, but regularly selling products or services? That might cross the line into business territory.

Okay, so if a charity does run a business for fundraising, what makes it acceptable or related?

Right. So, a business activity is considered related and generally permissible if one of two conditions is met. Either it's run almost entirely by volunteers

Okay, lots of volunteers.

Or if it's staffed, it has to be both linked directly to the charity's purpose and subordinate to that purpose.

What means it's AND subordinate?

Both. Both. Linked means there's a clear connection between the business itself and the charity's mission. Subordinate means the business activity doesn't dominate the charity's resources or focus, it remains secondary to the main charitable work.

What happens if it's linked but not subordinate? Like it connects to the mission but takes over everything?

That could potentially become that collateral non charitable purpose we talked about earlier, a major non charitable activity running alongside the mission.

And if it's subordinate, small scale, but not linked.

Ah, then it's an unrelated business. And running an unrelated business, even for fundraising, is generally prohibited for registered charities.

Okay, let's use that coffee shop example. An environmental group opens a coffee shop.

Right. So say an environmental charity focused on protecting forests opens a standard coffee shop with paid staff in the city. The profits go to planting trees? Sure.

Seems okay on the surface.

Well, running a coffee shop, is that inherently linked to protecting forests? Probably not directly. So it likely fails the linked test. Even if the shop is small scale compared to their conservation work, so it might be subordinate because it's not linked, it would likely be deemed an unrelated business by the CRA and therefore, an unacceptable way to fundraise.

That clarifies it. It's not just where the money ends up but how it's generated. Okay. We've gone through the types of unacceptable fundraising. What happens if a charity actually does cross these lines?

What are the consequences?

They can be pretty serious. The CRA has a range of tools. They might require the charity to enter into a compliance agreement basically promising to fix the issues. They can impose monetary penalties.

Then the ultimate

Revocation of their registered charitable status under the Income Tax Act.

Wow. And that means?

That means they can no longer issue official donation receipts for tax purposes, which as you can imagine makes it incredibly difficult to raise funds. It's often a fatal blow for a charity.

So staying compliant isn't just about ticking boxes, it's fundamental. What are the absolute key things charities need to keep front and center?

Okay, boiling down one. Fundraising must always be a tool to achieve the charitable mission, not an end in itself. Two, any private benefit must be truly incidental, necessary, reasonable, proportionate. Three. Everything must be legal and ethical.

No cutting corners.

And transparent.

Absolutely. Four. Be completely truthful and open in all communications with the public. And five. If you're running any kind of business activity for funds, make absolutely sure it fits the CRA's rules for a related business volunteer run or LinkedIn subordinate.

And if there's any gray area?

Get professional advice. Seriously. Charity law is complex. Consulting with experts is the smart move when in doubt.

This has been incredibly helpful. It really breaks down what can seem like complicated rules. Ultimately, these guidelines exist to protect the charities themselves, the whole sector's reputation, and you, the donor.

Exactly. It's about ensuring that when you give, your generosity has the real impact you intend it to have.

So maybe the question to leave you with is this: Thinking about the charities you support and knowing these guidelines now, are there any questions that come to mind about how they raise their funds?

Yeah, it's worth thinking about. Being informed doesn't mean being suspicious, it just means being engaged. Understanding these rules helps you be a more effective and confident supporter of the amazing work Canadian charities.