Policy Guidance and Other Priorities at the Charities Directorate: Fundraising and More  Foundation Forum Western Universi...
Today’s Presentation <ul><li>What is the role of the Charities Directorate? </li></ul><ul><li>What are the Charities Direc...
What is the role of the Charities Directorate? <ul><li>Our Mission </li></ul><ul><li>Our mission is to promote compliance ...
Priorities – new guidance <ul><li>New guidance in 2009: </li></ul><ul><ul><li>Fundraising </li></ul></ul><ul><ul><li>Resea...
Priorities - enhance service <ul><li>After many improvements to our processes, 4,585 applications for charitable status we...
Priorities – introduce the T3010B <ul><li>Revised Registered Charity Information Return with simplified core section, and ...
Priorities – examine tax shelters <ul><li>Since 2007 the CRA has revoked 33 charities for participating in tax shelters. <...
Priorities – the Small and Rural Charities (SARC) initiative <ul><li>(SARC) program changes: </li></ul><ul><ul><li>Complia...
The Charities Directorate’s Guidance on Fundraising  <ul><li>The Charities Directorate released new guidance on fundraisin...
Why new guidance on fundraising? <ul><li>The guidelines were developed in order to: </li></ul><ul><li>Promote consistency ...
Provincial role in regulating fundraising <ul><li>The Constitution Act of 1867 gives the provinces broad powers to regulat...
General provisions regulating fundraising practices <ul><li>The Charities Directorate is responsible for registering and m...
How does the guidance help? <ul><li>Four key elements: </li></ul><ul><ul><li>Definition of terms - fundraising  </li></ul>...
Definitions – what is fundraising? <ul><li>As a general rule, fundraising is any activity that: </li></ul><ul><ul><li>incl...
What are some examples of fundraising? <ul><li>Some examples of fundraising include: </li></ul><ul><ul><li>Holding a dinne...
Reporting – how does a charity report fundraising? <ul><li>Charities must report fundraising expenses on their annual Regi...
General Evaluation This level will raise concerns with the CRA. The charity must be able to provide an explanation and rat...
What other factors, does the Charities Directorate consider? <ul><li>The context of any fundraising situation is vital, an...
What practices decrease the risk of unacceptable fundraising activities? <ul><li>Best practices include: </li></ul><ul><ul...
What practices cause concern with the Charities Directorate?  <ul><li>A charity should avoid: </li></ul><ul><ul><li>Fundra...
What’s next for the guidance? <ul><li>The Charities Directorate is monitoring the implementation of the guidance and conti...
What is the disbursement quota, and why is it important? <ul><li>The Act contains a formula to calculate an annual spendin...
How (in brief) is a foundation’s DQ calculated? <ul><li>The three major elements of the DQ are: </li></ul><ul><ul><li>An a...
What if a foundation can’t meet its disbursement quota?  <ul><li>No new relief provisions as a result of the recent econom...
How can a charity use its disbursement excesses? <ul><li>If a charity spent more than the minimum required by the DQ in an...
Can a charity encroach on 10-year gifts? <ul><li>A charity can encroach on the capital of its 10-year gifts to meet its 3....
Can a charity use the Capital Gains Pool if it can’t meet its DQ? <ul><li>The Capital Gains Pool (CGP) is a relatively com...
Can a charity apply for a reduction in its DQ? <ul><li>Yes, using Form T2094, Registered Charities:  Application to Reduce...
<ul><li>Thank you </li></ul><ul><li>www.cra.gc.ca/charities </li></ul><ul><li>1-800-267-2384 </li></ul>
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Policy Guidance and Other Priorities at the Charities ...

  1. 1. Policy Guidance and Other Priorities at the Charities Directorate: Fundraising and More Foundation Forum Western University October 28, 2009 Neil Cochrane, Manager, Common Law Policy and Public Education
  2. 2. Today’s Presentation <ul><li>What is the role of the Charities Directorate? </li></ul><ul><li>What are the Charities Directorate’s priorities? </li></ul><ul><ul><li>Developing policy guidance </li></ul></ul><ul><ul><li>Providing enhanced service </li></ul></ul><ul><ul><li>Introduce the T3010B </li></ul></ul><ul><ul><li>Combating tax shelters / false receipting </li></ul></ul><ul><ul><li>Implementing the Small and Rural Charities program </li></ul></ul><ul><li>What are the highlights of the new fundraising guidance? </li></ul><ul><li>What if a foundation has difficulty meeting its Disbursement Quota (DQ)? </li></ul>
  3. 3. What is the role of the Charities Directorate? <ul><li>Our Mission </li></ul><ul><li>Our mission is to promote compliance with the income tax legislation and regulations relating to charities through education, quality service, and responsible enforcement, thereby contributing to the integrity of the charitable sector and the social well-being of Canadians. </li></ul><ul><li>What we do </li></ul><ul><ul><li>review applications for registration as a charity, RCAAA or RNASO; </li></ul></ul><ul><ul><li>provide information, guidance and advice on maintaining registered status; </li></ul></ul><ul><ul><li>ensure that registered organizations comply with registration requirements through a balanced program of education, service, and responsible enforcement </li></ul></ul>
  4. 4. Priorities – new guidance <ul><li>New guidance in 2009: </li></ul><ul><ul><li>Fundraising </li></ul></ul><ul><ul><li>Research </li></ul></ul><ul><ul><li>Sports </li></ul></ul><ul><ul><li>Protection of human rights (draft) </li></ul></ul><ul><ul><li>Foreign activities (draft) </li></ul></ul><ul><li>Guidance currently under development: </li></ul><ul><ul><li>Advancement of religion </li></ul></ul><ul><ul><li>Protection of the environment </li></ul></ul><ul><ul><li>Promotion of the arts </li></ul></ul><ul><ul><li>Alternative medicine </li></ul></ul>
  5. 5. Priorities - enhance service <ul><li>After many improvements to our processes, 4,585 applications for charitable status were resolved in the 2008 to 2009 fiscal year – an increase of 25% over the average productivity of the previous two years. </li></ul><ul><li>This resulted in a reduction of about 26% in the backlog of applications, from a peak in the fiscal year of 3,223 to under 2,400. </li></ul><ul><li>The total backlog of written enquiries to our Client Service section was reduced by 78%. </li></ul>
  6. 6. Priorities – introduce the T3010B <ul><li>Revised Registered Charity Information Return with simplified core section, and separate schedules to report particular scenarios, such as: </li></ul><ul><ul><li>Foreign activities </li></ul></ul><ul><ul><li>Revenues over $100,000 </li></ul></ul><ul><ul><li>Compensation of directors </li></ul></ul><ul><li>Intended to make filing easier for small charities </li></ul><ul><li>Note that all charities filing for a fiscal period ending in 2009 must file the T3010B form – the older T3010A form will be rejected </li></ul>
  7. 7. Priorities – examine tax shelters <ul><li>Since 2007 the CRA has revoked 33 charities for participating in tax shelters. </li></ul><ul><li>As of November 2008, CRA audits and re-assessments had denied $2.5 billion in donations reported on Tax Returns back to 2002. </li></ul><ul><li>The CRA continues to post warnings about participating in tax shelters on its Web site, and to investigate and audit tax shelters. </li></ul>
  8. 8. Priorities – the Small and Rural Charities (SARC) initiative <ul><li>(SARC) program changes: </li></ul><ul><ul><li>Compliance letters are now sent to at least two contacts at a charity </li></ul></ul><ul><ul><li>Several checklists have been developed to help charities quickly understand the Act’s requirements </li></ul></ul><ul><ul><li>The revised information return will facilitate annual filing for most small charities </li></ul></ul><ul><li>$3.1 million announced in April 2009 to assist with education and information programs for small and rural charities. </li></ul>
  9. 9. The Charities Directorate’s Guidance on Fundraising <ul><li>The Charities Directorate released new guidance on fundraising on June 11, 2009. </li></ul><ul><li>While fundraising is not itself a charitable purpose, it clearly is necessary and can be conducted within reasonable limits. </li></ul><ul><li>The new guidelines clarify the Charities Directorate’s expectations concerning how charities should manage fundraising in order to remain compliant with the Act. </li></ul>
  10. 10. Why new guidance on fundraising? <ul><li>The guidelines were developed in order to: </li></ul><ul><li>Promote consistency in how CRA officials interpret and apply the legislation when dealing with fundraising issues </li></ul><ul><li>Promote consistency in how fundraising expenses are reported by charities </li></ul><ul><li>Improve transparency and enable charities to better understand the Charities Directorate’s expectations when making decisions about fundraising. </li></ul>
  11. 11. Provincial role in regulating fundraising <ul><li>The Constitution Act of 1867 gives the provinces broad powers to regulate charities. </li></ul><ul><li>Some provinces have specific legislation related to fundraising but it tends to be limited in scope. </li></ul><ul><ul><li>Some provinces require organizations to register their fundraising activities (e.g. Alberta) </li></ul></ul><ul><ul><li>Ontario has the Charities Accounting Act. </li></ul></ul><ul><li>The effect is that the Charities Directorate is seen as the de facto regulator for charities. </li></ul>
  12. 12. General provisions regulating fundraising practices <ul><li>The Charities Directorate is responsible for registering and monitoring charities under the relevant provisions of the Act. </li></ul><ul><li>While there are no specific fundraising provisions in the Act, a charity must still comply with all other requirements: </li></ul><ul><ul><li>Devotion of all resources to charitable purposes and activities </li></ul></ul><ul><ul><li>Must operate for public benefit, not private benefit </li></ul></ul><ul><ul><li>Accurate reporting of expenses </li></ul></ul>
  13. 13. How does the guidance help? <ul><li>Four key elements: </li></ul><ul><ul><li>Definition of terms - fundraising </li></ul></ul><ul><ul><li>Guidance for reporting expenses properly – how to allocate between fundraising and other expenditures </li></ul></ul><ul><ul><li>Provides a tool for high level assessments of fundraising activities based on cost/revenue ratios. </li></ul></ul><ul><ul><li>Promotes best practices </li></ul></ul>
  14. 14. Definitions – what is fundraising? <ul><li>As a general rule, fundraising is any activity that: </li></ul><ul><ul><li>includes a solicitation of support for cash or in-kind donations (solicitations of support include sales of goods or services to raise funds); </li></ul></ul><ul><ul><li>is part of the research and planning for future solicitations of support; or </li></ul></ul><ul><ul><li>is related to a solicitation of support (efforts to raise the profile of a charity, donor stewardship, donor recognition, etc…) </li></ul></ul>
  15. 15. What are some examples of fundraising? <ul><li>Some examples of fundraising include: </li></ul><ul><ul><li>Holding a dinner, gala, or similar event to generate funds for the charity’s operation </li></ul></ul><ul><ul><li>Selling merchandise, e.g. chocolate bars or T-shirts, to create a profit </li></ul></ul><ul><ul><li>Telemarketing or direct mail campaigns to solicit donations </li></ul></ul><ul><ul><li>A marathon where runners are sponsored, and the donations benefit the charity </li></ul></ul><ul><li>What isn’t fundraising? </li></ul><ul><ul><li>Requests for funding from government or other registered charities </li></ul></ul><ul><ul><li>The operation of a related business (as defined in the Income Tax Act ) </li></ul></ul><ul><ul><li>Recruiting volunteers </li></ul></ul>
  16. 16. Reporting – how does a charity report fundraising? <ul><li>Charities must report fundraising expenses on their annual Registered Charity Information Return (Form T3010B). </li></ul><ul><li>Generally, if an activity involves a solicitation of support, it’s a fundraising activity and all expenses should be reported accordingly. </li></ul><ul><li>Some activities combine fundraising and charitable program activities. Proportional allocation of expenses are permitted in these situations. </li></ul>
  17. 17. General Evaluation This level will raise concerns with the CRA. The charity must be able to provide an explanation and rationale. Above 70% The CRA will examine the average ratio over recent years - the higher the ratio, the more likely the CRA will conduct a more detailed assessment. 35% and above Unlikely to generate questions or concerns . Under 35% CRA Approach Ratio of cost to revenue
  18. 18. What other factors, does the Charities Directorate consider? <ul><li>The context of any fundraising situation is vital, and other factors that may mitigate include: </li></ul><ul><ul><li>The size of charity </li></ul></ul><ul><ul><li>Whether it serves less well-known causes that may require additional fundraising effort </li></ul></ul><ul><ul><li>Whether the charity is carrying out a donor acquisition or development drive </li></ul></ul>
  19. 19. What practices decrease the risk of unacceptable fundraising activities? <ul><li>Best practices include: </li></ul><ul><ul><li>Researching and planning fundraising </li></ul></ul><ul><ul><li>Managing and supervising fundraising activities as they are carried out </li></ul></ul><ul><ul><li>Making efficient use of volunteer time, services, and resources </li></ul></ul><ul><ul><li>Evaluating the effectiveness of fundraising activities </li></ul></ul><ul><ul><li>Being transparent and disclosing fundraising costs, revenues, and practices </li></ul></ul>
  20. 20. What practices cause concern with the Charities Directorate? <ul><li>A charity should avoid: </li></ul><ul><ul><li>Fundraising contracts where the majority of funds go to third-party fundraiser </li></ul></ul><ul><ul><li>Fundraising merchandise purchased by the charity above fair market value </li></ul></ul><ul><ul><li>Use of commission-based fundraising, or payment based on amount or number of donations received </li></ul></ul><ul><ul><li>Failing to document fundraising activities </li></ul></ul><ul><ul><li>Devoting more resources to fundraising than to charitable program activities </li></ul></ul><ul><ul><li>Misrepresenting the organization in fundraising solicitations, or in disclosures about fundraising or financial performance </li></ul></ul>
  21. 21. What’s next for the guidance? <ul><li>The Charities Directorate is monitoring the implementation of the guidance and continues to accept feedback. </li></ul><ul><li>The Charities Directorate will review the guidance in April 2010 in light of any feedback received. </li></ul>
  22. 22. What is the disbursement quota, and why is it important? <ul><li>The Act contains a formula to calculate an annual spending requirement, or disbursement quota (DQ), for every charity. </li></ul><ul><li>In general terms, the DQ is intended to: </li></ul><ul><ul><li>ensure that charities use the bulk of their tax receipted gifts for charitable work; and </li></ul></ul><ul><ul><li>discourage excessive accumulation of funds. </li></ul></ul><ul><li>Charities that fail to comply with the DQ can lose their registered charitable status. </li></ul>
  23. 23. How (in brief) is a foundation’s DQ calculated? <ul><li>The three major elements of the DQ are: </li></ul><ul><ul><li>An amount equal to 80% of tax-receipted gifts received in the previous year </li></ul></ul><ul><ul><li>An amount equal to 80% of amounts received from other registered charities in the previous year </li></ul></ul><ul><ul><li>An amount equal to 3.5% of the average value of a charity’s investment property (if more than $25,000) </li></ul></ul><ul><li>A foundation’s 3.5% DQ is based on the average value of its investment property, calculated over the 24 month period before the current year. </li></ul>
  24. 24. What if a foundation can’t meet its disbursement quota? <ul><li>No new relief provisions as a result of the recent economic slowdown. </li></ul><ul><li>The normal mechanisms in the Act continue to apply, for example: </li></ul><ul><ul><li>Past DQ excesses can be applied to current shortfalls </li></ul></ul><ul><ul><li>Shortfalls can be made up in the following year. </li></ul></ul><ul><ul><li>It may be possible to encroach on 10 year gifts </li></ul></ul><ul><ul><li>The capital gains pool might be of use </li></ul></ul><ul><ul><li>Application may be made to reduce DQ in extraordinary circumstances </li></ul></ul>
  25. 25. How can a charity use its disbursement excesses? <ul><li>If a charity spent more than the minimum required by the DQ in any of the past five years, it will have a DQ excess for that year. </li></ul><ul><li>A charity can draw on any of the previous five year’s excesses to “cancel out” a shortfall in the current year (a shortfall is the amount by which a charity does not meet its DQ). </li></ul><ul><li>A charity can also carry forward a shortfall one year, and meet that shortfall with additional spending in that following year. </li></ul>
  26. 26. Can a charity encroach on 10-year gifts? <ul><li>A charity can encroach on the capital of its 10-year gifts to meet its 3.5% DQ, if the donor gives it permission to do so at the time of donation . </li></ul><ul><li>Encroaching on 10-year gifts will create an additional DQ obligation, which may wind up defeating the purpose of encroaching in the first place. </li></ul>
  27. 27. Can a charity use the Capital Gains Pool if it can’t meet its DQ? <ul><li>The Capital Gains Pool (CGP) is a relatively complex provision intended to help foundations with investment property that has increased in value, but does not produce cash (e.g. mutual funds), to meet their DQ. </li></ul><ul><li>Very briefly, the CGP reduces the DQ of foundations that: </li></ul><ul><ul><li>Have investment property subject to the 3.5% DQ; and </li></ul></ul><ul><ul><li>Trigger an 80% DQ on the amount withdrawn, usually to meet the 3.5% requirement. and </li></ul></ul><ul><ul><li>Realize a capital gain on the enduring property they spend. </li></ul></ul>
  28. 28. Can a charity apply for a reduction in its DQ? <ul><li>Yes, using Form T2094, Registered Charities: Application to Reduce Disbursement Quota. </li></ul><ul><li>A DQ reduction is only granted in extraordinary circumstances, e.g. lightening destroys a charity’s building, paralyzing its operations. </li></ul><ul><li>A charity must use all available DQ excesses first, and be otherwise unable to address a shortfall. </li></ul><ul><li>Unlikely to be granted because of reduced investment income or a fall in donation revenue. </li></ul>
  29. 29. <ul><li>Thank you </li></ul><ul><li>www.cra.gc.ca/charities </li></ul><ul><li>1-800-267-2384 </li></ul>
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