The Canada Revenue Agency‘s new guidance on fundraising is scheduled to be released in March.

Preliminary details were revealed in an hour-long webinar on February 10, hosted by charity lawyer Mark Blumberg and co-sponsored by both the CRA’s Charities Directorate and Capacity Builders, a division of the Ontario Community Support Association.

CRA’s new guidelines have been streamlined and updated to better reflect the changing environment of the charitable sector and to tighten accountability controls over nonprofit fundraising activities.

This new guidance replaces the last version, which was published in June 2009.

Blumberg cautioned that the new guidance was still subject to change until the final draft is released next month. Still, it’s safe to assume most of the updates will remain as presented in this story.

The agency’s guidance is as detailed as ever, and charities should pore over it with relevant staff members. Below are some of the highlight amendments to the guidance.

What’s your ratio?

According to Blumberg, one of the major changes to the guidance is that the CRA will now consider a wider range of indicators when evaluating a charity’s fundraising activities. Instead of simply looking at the ratio of resources devoted to fundraising versus resources used for programming, the agency will now also consider whether the fundraising is being done without “an identifiable use or need for the proceeds.”

Look that gift horse in the mouth

The CRA has also modified its definition of fundraising. Generally speaking, it now considers fundraising as “any activity that includes a solicitation of present or future donations of cash or gifts in kind, or the sale of goods or services to raise funds, whether explicit or implied.”

It’s that new “gifts in kind” line that adds more complexity to this aspect of the guidance, so be aware, Blumberg counsels.

Fundraising is not…

Under the new guidance a charity cannot claim fundraising expenses for the following activities: seeking grants, gifts, contributions or other funding from other charities or government; recruiting of volunteers for general operations of the charity.

And it goes without saying that there are unacceptable fundraising practices as identified by the CRA. These include, fundraising that “delivers a more than incidental private benefit,” that is illegal, deceptive or is an unrelated business.

The CRA will also now take a long, hard look at any charity it believes misrepresents how it fundraises, namely via obfuscating information about third-party mechanisms.

“Registered charities must not misrepresent…whether they have hired third-party fundraisers, and how those fundraisers are compensated,” Blumberg noted. “Commonly, a charity has at least some expenses for its fundraising activities, and may be required to pay substantial fees to any third-party fundraiser it employs. As these expenditures ultimately reduce the charity’s fundraising revenue, this type of claim could be considered to be deceptive.”

Additionally, charities should note that staff salaries, or portions thereof, that go towards applying for grants should be reported as an administrative expenditure and not as a fundraising cost, he said.

Playing the game

Blumberg cited an important note about fundraising through gaming initiatives. In the upcoming guidance, the CRA makes clear it will be lenient to charities that use lotteries or bingos to fundraise, if done right.

“The costs and revenues of these gaming activities are reported on a charity’s Form T3010, and may result in a relatively high fundraising ratio. If a charity’s gaming activities comply with all relevant provincial or territorial regulations, the CRA will generally be prepared to accept the higher cost ratios associated with these gaming activities,” he said.

Speaking of the T-3010’s, the CRA is also taking a hard line on how a charity reports its fundraising revenue on that form. The agency will consider taking action using powers it has in the Income Tax Act against any organization that inaccurately reports or knowingly or negligently understates its fundraising expenses on line 5020 of the T3010.

Transparency and disclosure

The CRA also makes special mention of the need for charities to remain transparent to the public.

In a recommendation to the sector, it asks charities to “provide complete disclosure of all fundraising costs, revenues, practices, and arrangements so that members of the public — and, more specifically, donors or prospective donors — are not deceived or misled about the resources from fundraising that are ultimately available to a registered charity for its programs, services, or gifts to qualified donees,” according to Blumberg.

It suggests that charities release information, such as its annual financial statements, in some form for public review.

Related to this, the CRA also reminds charities to use independent auditors and/or “externally established standards” to promote ethical and accurate financial reporting mechanisms. The latter suggestion is likely a nod to initiatives such as Imagine Canada‘s newly launched Standards Program, which while voluntary, cover most of the CRA’s requirements.

Keep some change in your pocket

Another new wrinkle added by the CRA is its call for charities to create policy around — and maintain — a reserve fund. Blumberg said this would help charities when planning, explaining and justifying their approach to fundraising. Such a policy can “help to ensure that a charity fundraises with an identifiable use or need, reducing the risk of failing to devote resources to charitable activities or engaging in fundraising that forms a collateral purpose.”

“A transparent and publicly accessible policy may also help ensure that fundraising appeals are not misleading or deceptive, by misrepresenting the charity’s financial position and the extent or urgency of its need for funds,” Blumberg advised.

Even if it’s not you, it’s you

A last note of caution about fundraising from Blumberg: he says to be aware that the CRA considers third-party fundraising events to reflect on your organization.

Even if you are not directly associated with a third-party fundraiser, but receive the money from such an event or establishment, your charity must still “ensure that any individual or organization that carries out fundraising activities on [your] behalf complies” with CRA guidelines.

Blumberg said that if a charity has no relationship with that third party then it does not have to make sure it complies with guidance.

“In many cases, a charity would not even be aware of the event until they receive funds. But if the charity has any relationship with the third party fundraising for it and the charity is aware of problematic behavior [by that third party] they should make sure that the third party complies with the expectations in the guidance,” he said.

Words of wisdom

The most important item charities can take from the new guidance, Blumberg said, is that the CRA and the public is concerned about how charities fundraise.

“There are many factors that can go into whether fundraising is acceptable or unacceptable, and people should not rely on simple, but sometimes simply misleading ratios. Anyone involved in fundraising or completing the T3010 at a charity should read the new guidance as it will help avoid compliance and reputational problems.”

Andy Levy-Ajzenkopf is president of WordLaunch professional writing services in Toronto. He can be reached at andy@wordlaunch.com.