Tax Implications Related to Third Party Fundraising

Canada Revenue Agency (“CRA”) recently released a CRA View (#2014-0517481E5) that comments on issues related to third-party fundraising. This View was released in response to an inquiry regarding the tax implications to an organizer (i.e., the fundraiser) of a fundraising event, where the organizer as a non-profit organisation intended to give the proceeds of the event to a registered charity.
In response, CRA stated that, generally, fundraising is considered a profit activity, but CRA may allow a non-profit organization, as defined under paragraph 149(1)(l) of the Income Tax Act (“ITA”), to carry out some fundraising activity without jeopardizing its tax exempt status if the scope of the fundraising activities does not escalate to the point where it could be considered a purpose of the organization. However, if the scope of the fundraising does reach this point, then the organization will no longer qualify for tax-exempt status under section 149(1)(l) of the ITA. Consequently, CRA went on to state that “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.” In this particular circumstance, CRA could not determine whether the scope of fundraising activities in relation to other activities was so great as to be considered an organizational purpose.
CRA then went on to review the issue of whether fundraisers are carrying on a business or if amounts that they receive can be considered gifts, an issue that CRA indicated was always a question of fact. In this regard, CRA further indicated that when fundraising generates income from a business, this income should generally be included in calculating income under section 9 of the ITA. In such circumstances, where the fundraised amounts were donated to a registered charity, a donation receipt may be available to the fundraiser, allowing it to reduce either taxable income or taxes payable.
However, CRA is of the opinion that, in many cases, the amounts raised would be considered gifts from the outset and would, therefore, not treated as taxable income. This is because CRA would view the fundraisers as acting as agents for the persons from whom the funds were collected and, therefore, responsible for transferring the property collected from the persons over to the registered charities in question. CRA concluded that “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.”
It is also noteworthy that, in its response, CRA referenced the fact that in the Federal Budget 2014, the Minister of Finance announced that there would be a public consultation on the income tax framework for non-profit organizations and that “we encourage all interested persons to participate in the consultation process.” To date, it does not appear that the Department of Finance has officially launched this consultation process. Non-profit organizations should keep an eye out for developments in this regard.