F6 Why isn't a fundraising activity a charitable expenditure? I don't understand the difference.
A charitable expenditure is spending that directly furthers your charitable purpose. If your charitable purpose is to fight childhood diseases, then distributing mosquito nets and immunization campaigns might be among your charitable programs. In order to finance these programs, you need to raise funds. You might hold an auction, a dinner, or a golf tournament. Those are your fundraising activities.
The distinction between charitable expenditures and fundraising expednitures is not always clear. One activity can have both charitable and fundraising components. While a fundraising banquet isn’t a charitable program or service, a guest speaker’s presentation at the banquet may educate a new audience about a topic included in the charity’s purpose.
In this combined activity, the charity needs to decide how to allocate the elements of the event and their costs for reporting purposes and needs to maintain separate records of those costs. A registered charity is allowed to spend up to 20 per cent of its total receipted income on non-charitable expenditures of which fundraising is only a part. This limitation is explained in the disbursement quota FAQs.
123Go, a children's health charity, has a month-long awareness campaign in which most of a printed flyer provides information about childhood diseases and a paragraph on the back page appeals for funds so 123Go can continue its work. Note: 123Go, in this example, does not use a professional fundraiser to create or distribute the flyer. For its record keeping, the charity separates the portion that furthers its charitable object and the portion that raises funds. On the two-page flyer, the closing paragraph represents 15 per cent of the content. Therefore 15 per cent of the writing, printing, and distribution costs is considered fundraising costs, while the other 85 per cent is seen as 123Go's charitable costs.
More…See the Disbursement Quota FAQs.