A ruling letter issued early in 2015 by the CRA dealing with third-party fundraising offers nothing particularly new in the way of interpretation but does offer a bit of clarification. The question posed seemed to be by an official of a charity who was questioning situations where a third-party raised funds which were donated to the charity. It seems quite clear that this was not about retaining a professional fundraising firm.
The question dealt with the tax implications to the organizers (the “fundraisers”) of a fundraising event, where they intend to donate the proceeds from their event to the registered charity with which the questioner was involved. The fundraisers might be individuals or businesses.
After waffling a bit about confidentiality rules, it seems that the answer dealt with an unincorporated non-profit organization.
An unincorporated association, generally, is not itself a separate taxpayer. However, an association described in paragraph 149(1)(l) of the Act, is treated as a separate taxpayer under the Act. The letter goes on to essentially quote the Income Tax Act.
In general terms, paragraph 149(1)(l) of the Act provides that the taxable income of an organization is exempt from tax under Part I of the Act for a period throughout which the organization meets all of the following conditions:
- It is a club, society or association;
- It is not a charity;
- It is organized and operated exclusively for social welfare, civic improvement, pleasure, recreation or any other purpose except profit; and
- Its income is not available for the personal benefit of a member or shareholder, unless the member or shareholder is an association which has as its primary purpose and function the promotion of amateur athletics in Canada.
All that having been said, we quote the balance of the letter:
Generally, fundraising, by its very nature, is considered a profit activity. However, the CRA accepts that certain fundraising activities can be carried on directly by a 149(1)(l) entity without jeopardizing its tax-exempt status. Limited fundraising activities involving games of chance (e.g., lotteries, draws), or sales of donated or inexpensive goods (e.g., bake sales, barbeques), generally do not indicate that the organization as a whole is operating for a profit purpose.
However, the scope of the fundraising activities, especially by comparison with other activities, should not be so significant that fundraising can be considered a purpose of the organization, in which case the organization may not qualify as a 149(1)(l) entity.
Organizations that are established and operated for the sole purpose of raising funds are not considered non-profit organizations even if all the profit from a fundraising activity is donated to a registered charity. These organizations do not meet the operated exclusively for any other purpose except profit requirement. In this context it is also useful to view the broad definition of business in the Act:
“business” includes a profession, calling, trade, manufacture or undertaking of any kind whatever and…an adventure or concern in the nature of trade but does not include an office or employment.
It is always a question of fact whether fundraisers are carrying on a business or if amounts received can be considered gifts. Such a determination can only be made based on the specific facts of a particular situation.
Where fundraising generates income from a business, the income would generally be included in calculating income under section 9 of the Act. In such circumstances, a donation receipt may be available and allow the taxpayer to reduce either taxable income or taxes payable, if a donation is made to a registered charity.
In many cases, the amounts received would be considered gifts. If the amounts are gifts then it is our view that the fundraisers would not be subject to tax on the income. In this situation, the fundraisers would be acting as an agent for the persons from whom the funds were collected. The property transferred to the registered charity would be the property of the persons from whom it was collected on the understanding it would be given to the charity. Generally, it is the CRA’s view that where fundraisers collect funds from the general public and pay the amounts to a registered charity the fundraisers would not be entitled to a donation receipt.
The letter ends with a general invitation.
As you may be aware, the Minister of Finance announced in Budget 2014 that there would be a public consultation on the income tax framework for non-profit organizations (NPOs) to ensure that the tax exemption for NPOs is appropriately targeted and not subject to abuse by organizations that claim the exemption but are not operating in the manner intended, and to ensure that reporting requirements for legitimate NPOs provide the public and the CRA with sufficient information to evaluate their activities. We encourage all interested persons to participate in the consultation process.
 Presumably a commercial enterprise.