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CRA Calls for Comments on Fundraising Cost Guidelines

(April 28, 2008)The Canada Revenue Agency (CRA) has proposed new guidelines on how charities should report fundraising costs and whether expenses can be considered charitable or fundraising.

The new policy statement, entitled Policy on Fundraising, outlines the CRA's position on how costs associated with fundraising activities, or activities undertaken for fundraising and one or more other purposes, should be reported on a registered charity's T3010A (the CRA's Registered Charity Information Return). The policy statement also sets out guidance for registered charities on how the CRA assesses a charity's fundraising to determine if it is acceptable.

While AFP is supportive of parts of the policy statement, especially its consideration of the perils of percentage-based compensation, it has concerns over the agency’s use of percentages when considering fundraising costs.

Multi-purpose Communications

The courts have determined that fundraising (whether undertaken as a purpose or activity) is not in-and-of-itself charitable. Consequently, the costs of fundraising cannot usually be reported as charitable expenditures on a charity's T3010A, and fundraising activities are not normally treated as advancing the charitable purposes of a registered charity.

As a general rule, on their T3010A return, charities are to report as fundraising expenditures all costs related to any activity that includes a solicitation of support or is undertaken as part of the planning and preparation for future solicitations of support, unless it can be demonstrated that the activity would have been undertaken without the solicitation of support.

According to CRA's proposed guidelines, to demonstrate that the activity would have been undertaken without the solicitation of support, charities must demonstrate either A or B below:

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


B. 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.

Where the test in A is met, on the T3010A return, all costs for the activity may be allocated as non-fundraising expenditures. Where the tests in B are met, on the T3010A return, a portion of the costs for the activity may be allocated as non-fundraising expenditures, and a portion as fundraising expenditures.

Evaluating Fundraising Activities

The CRA plans to use a ratio of fundraising costs to fundraising revenue to conduct its preliminary evaluations of charities. Charities will fall into five categories, ranging from acceptable to rarely acceptable, in the evaluation grid below. The grid is the initial tool used in assessing the acceptability of a charity's fundraising, and serves as a general guide to the CRA's expectations.

  • Rarely acceptable:
    More than 70 percent (charity nets less than 30 percent)
  • Generally not acceptable:
    50 percent to 70 percent (charity nets 30 percent to 50 percent)
  • Potentially not acceptable:
    35.1 percent to 49.9 percent (charity nets 50.1 percent to 64.9 percent)
  • Generally acceptable:
    20 percent to 35 percent (charity nets 65 percent to 80 percent)
  • Acceptable:
    Less than 20 percent (charity nets more than 80 percent)

AFP is concerned about the use of fundraising cost percentages as a means for the CRA to choose which charities it will investigate further. These types of percentages are often overly simplistic and do not take into consideration any number of factors which could affect fundraising costs from year to year.

Before concluding that a charity's fundraising is not acceptable, the CRA will examine a charity's fundraising conduct based on the considerations set out below. The presence of sound practices, the absence of practices that increase the risk of unacceptable fundraising, as well as the recent trend in the charity's ratio of costs will be considered in making a final determination.

Evidence of certain types of conduct will help convince the CRA that the charity did not engage in unacceptable fundraising. These actions include:

  • Prudent planning processes
  • Appropriate procurement processes
  • Good staffing processes
  • Ongoing management and supervision of fundraising practice
  • Adequate evaluation processes
  • Use made of volunteer time and volunteered services or resources
  • Disclosure of fundraising costs, revenues and practice

Other actions to be considered as factors that a charity is engaged in unacceptable fundraising practices include:

  • Sole-sourced fundraising contracts without proof of fair market value
  • Non-arm's length fundraising contracts without proof of fair market value
  • Fundraising initiatives or arrangements that are not well-documented
  • Needless purchase, non-arm's length purchase or purchase not at fair market value, of fundraising merchandise
  • Activities where most of the gross revenues go to contracted non-charitable parties
  • Commission-based fundraiser remuneration or payment of fundraisers based on amount or number of donations
  • Fundraisers receiving disproportionate compensation relative to non-fundraisers
  • Total resources devoted to fundraising exceeding total resources devoted to program activities
  • Misrepresentations in fundraising solicitations or disclosures about fundraising or financial performance
  • Combined fundraising and charitable program activity, where contracted to a party that is not a registered charity or that is compensated based on fundraising performance

AFP is pleased to see that the CRA is taking into account the use of percentage-based compensation, as well as examining the impact of charities taking an appropriate long-term view of fundraising where initial investments are made that will bear fruit in future years. However, AFP has additional concerns with some of these factors as well.

Other circumstances that the CRA might consider when looking at fundraising costs include:

  • Small charities or charities with limited appeal
  • Charities that are investing resources in donor acquisition or other types of fundraising in which the return will not be realized in the same year in which the investment is made
  • Charities whose main or major purpose is to make gifts to qualified donees, or to one or more registered charities and as a result have a different cost structure than charities that carry on their own activities
  • Charities whose activities include lotteries or charitable gaming that is regulated provincially
  • Charities engaging in cause-related marketing initiatives
  • Charities with extraordinary spending, relative to their size, on infrastructure to ensure compliance with this fundraising policy

AFP will submit comments to the CRA prior to the June 30, 2008 deadline. If you have comments, feedback or suggestions that you would like to forward to AFP for its submission, please contact Jason Lee, AFP’s Director of Government Relations, at

Those wishing to comment separately can submit those comments to the address or fax below or by email to

The mailing address is:

Charities Directorate, CRA
Ottawa ON K1A 0L5
Fax: 613-948-1320

For a complete copy of the policy statement on fundraising costs, go to the CRA website.

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