Cost of Fundraising

F20. Why does a charity have to make a distinction between its fundraising activities and its charitable program activities?

F20. Why does a charity have to make a distinction between its fundraising activities and its charitable program activities?


Short answer

A charity is constituted to pursue certain charitable objectives.  These may include: to relieve poverty; to advance education; to advance religion; or to benefit the community (as defined by the courts). Fundraising activity is usually necessary to finance such charitable objectives. Fundraising is allowed as long as it complies with the CRA’s guidelines. CRA guidelines were developed to help charity’s understand what fundraising conduct is permissible and what is impermissible.  Broadly, CRA wants to ensure that the charity is spending substantially all its resources on programming, rather than administration and/or fundraising.

Registered Charities are required to report fundraising expenses separately from charitable program and other expenses on its annual T3010 form. In order to do so, what constitutes fundraising activity has to be well-defined, and the expenses associated with such activity have to be distinguishable from other costs. 

More…

The Charities File for more information on T3010 form- Info Sheet #1

Charity Central FAQ F6

F21. Does the CRA compare fundraising expenses to the amount we raised through fundraising?

F21. Does the CRA compare fundraising expenses to the amount we raised through fundraising?


Short answer

Yes. The ratio of fundraising expenses to fundraising revenues is one of the factors that the Canada Revenue Agency (CRA) reviews.

This CRA grid guides them in determining when additional information on fundraising costs is needed.

Ratio of costs to revenues
over fiscal period

CRA Approach

Costs under 35% of revenues

Generally acceptable and unlikely to generate questions or concerns.

Costs ranging from 35% to 70%

The CRA will check to see if there is a trend toward higher fundraising costs. The higher the ratio, the more likely that the CRA will ask for more detailed assessment of expenditures.

Costs above 70%

Rarely acceptable without a rationale to show that the charity is in compliance with fundraising requirements.

Reprinted from Guidance on Fundraising by Registered Charities.

Long answer

In addition to considering where the charity’s ratio fits into the range, the CRA will look at the Best Practice Indicators and any areas of concern that could lead to further review.

The CRA will also consider these factors in assessing a charity’s fundraising activities and costs:

  • The size of the charity – this may impact fundraising efficiency
  • Causes with limited appeal – fundraising for some causes can be more challenging and have limited results
  • Donor acquisition or long term campaigns, such as planned giving initiatives – could result in donations received in later years
More…

Charity Central learning module on Best Practice Indicators

Read more on Best Practice Indicators and CRA Guidance on Fundraising by Registered Charities

F22. How do we allocate expenses of an activity that includes fundraising?

F22. How do we allocate expenses of an activity that include fundraising?


Short Answer

A charity must satisfy one of two tests before determining how (if any) of the expenditures relating to an activity may be considered to have both fundraising and charitable components. These tests are:

  • Substantially All Test
  • Four Part Test
Long Answer

Substantially All Test

If 90 per cent or more of an activity advances your charity’s objective(s) other than fundraising, this activity would pass the Substantially All Test. The percentage is determined by the amount of content and the resources used in the activity. Prominence of the fundraising content is also taken into consideration. 

If an activity passes this test, all the activity’s expenditures can be reported on your T3010B form as non-fundraising expenditures such as charitable program expenditures, management and administrative expenditures, political activities expenditures, and other expenditures as applicable, and not as fundraising expenditures.


Four Part Test

If an activity did not pass the Substantially All Test, your charity may still allocate part of the activity’s expenditures to areas other than fundraising as long as it passes this Four Part Test.

The Four Part Test consists of four questions:

  • Was fundraising the main objective of the activity?

  • Were there ongoing or repeated requests, emotive requests, gift incentives, donor premiums, or other fundraising merchandise in the activity?

  • Was the audience selected based on its ability to give?

  • Was remuneration commission-based or based on the number or amount of donations?

If the answer to all four questions is “no,” the charity can allocate part of the activity’s expenditures to non-fundraising expenditures such as charitable program, management and administration or other expenditures.

If any of the answers to the four questions is “yes,” all the expenditures have to be reported as fundraising expenditures unless the activity falls under the exception.

Exception
Even if the charity did not answer “no” to all the questions, it can still allocate part of the expenses to non-fundraising if the activity furthers one of the charitable purposes by prompting an action or changing behaviour. Raising awareness as an element of a fundraising activity does not qualify for this exception.

More…

Charity Central Learning Module on Allocation of Fundraising Expenditures

CRA Guidance on Fundraising by Registered Charities

F23. We don't want to jeopardize our registered charity status. How do I determine if our charity is spending too much on fundraising?

F23. We don't want to jeopardize our registered charity status. How do I determine if our charity is spending too much on fundraising?


Short answer

Anything you spend on fundraising-both direct expenditures and amounts spent or held by another party to do fundraising on your behalf-must be tracked and reported on your annual T3010B filing.

At the end of each fiscal year, you need to calculate your disbursement quota (see F15) to know how much must be spent on charitable activities. In the coming year, you need to spend at least 80 per cent of receipted donations on your charitable purpose, leaving no more than 20 per cent for fundraising and administrative and other purposes.

Long answer

Registered charities should regularly review their fundraising activities and the associated costs in relation to their other activities and costs. When amounts spent on fundraising become disproportionate or unreasonable compared to the charity's other work, there is a risk that the registered charity is not satisfying its regulatory obligations.

The CRA watches for two ways that a charity may not be properly focused: if the charity appears to be spending too much time or too much money on fundraising. Fundraising must not be the centre of attention of the charity nor should a charity's time, effort, and other resources be devoted to fundraising rather than to carrying out its charitable purpose.

F24. My registered charity receives the bulk of its funding from corporations and government. Do I still need to be concerned about the disbursement quota?

F24. My registered charity receives the bulk of its funding from corporations and government. Do I still need to be concerned about the disbursement quota?

You should at least think about it. Even if the disbursement quota does not apply to the funding when it is income, because it is unreceipted, unless spent immediately on charitable programs or services (or gifted to a qualified donee), it will be subject to the disbursement quota applied to capital not used in charitable work. Registered charities that receive the majority of their funds from government, corporate sponsorships or sources other than donors should keep a very tight rein on their costs anyway, since they are still required under the Income Tax Act to devote all their resources toward charitable ends.

F26. How does our charity figure out the fundraising costs of an activity that is both fundraising and charitable?

F26. How does our charity figure out the fundraising costs of an activity that is both fundraising and charitable?


Short answer

If an activity clearly has both fundraising and charitable objectives, you may be able to divide up the costs of this activity based on the costs of the resources used for each objective. In some cases, the input costs related to each objective are discrete—as when different staff within your charity prepare different parts of a publication—and can be reported on your T3010 form as separate costs. The costs will show here the same way they do in your financial records. If the costs are not discrete, you should allocate them based on reasonable proportions applied consistently. Allocation of costs usually requires that the activity not bear traits that would cause it to be considered entirely fundraising (see long answer below). 

Examples

  • Eco-Charity publishes a newspaper insert with 65 per cent content from its program department and 35 per cent content from its development department. The staffing expenses for each department are the same (i.e., personnel are paid similarly regardless of which department they work in).  It costs $10,000 to print and distribute the insert. The cost to the program department is $6,500 (a T3010B charitable expenditure) and the cost to the development department is $3,500 (a T3010B fundraising expenditure).

  • Cup-of-Kindness Charity published a newspaper insert with 75 per cent of the content produced by its program department and 25 per cent of the content produced by the development office. Personnel in the development office are slightly better paid than program staff. Costs were allocated according to the resources used to produce the content for each department: the expenses of the program department to produce 75 per cent of the content (a T3010B charitable expenditure) and the expenses of the development office to produce its 25 per cent of the content (a T3010 fundraising expenditure). Since the value of the development office resources was more than 25 per cent—its salaries are slightly more expensive—this was reflected in the allocation of 73 per cent and 27 per cent.

Costs are not always discrete. The costs of printing and mailing covered all the materials regardless of objective. In this case, the charity assigned costs in proportion to the amount of content devoted to each objective—73 per cent as a charitable expenditure and 27 per cent as a fundraising expenditure.

Long Answer
  • If an activity’s main objective is fundraising, then all the resources that are used have to be reported as fundraising expenditures on the T3010 form.
  • A charity can show that an activity was undertaken without fundraising by satisfying one of these two tests:

    Substantially All Test
    If 90 per cent or more of the resources used for an activity is to further an objective other than fundraising, then none of the expenses have to be reported as fundraising.

    Four Part Test
    If an activity did not pass the substantially all test, the charity may still show that the activity happened without soliciting support by answering the four questions in the Four Part Test.

More…

Substantially All Test
Four Part Test
CRA Guidance on Fundraising by Registered Charities