Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Principal Issues: Issues relating to third party fundraising.
Position: General comments provided.
Reasons: See below.
XXXXXXXXXX
2014-051748
R. Meers
(613) 957-2100
January 29, 2015
Dear XXXXXXXXXX:
Re: Third Party Fundraising
This is in response to your e-mail of December 23, 2013, and our follow-up phone conversations (Filion/XXXXXXXXXX) inquiring with respect to the tax implications of certain third-party fundraising.
This technical interpretation provides general comments about the provisions of the Income Tax Act (the "Act") and related legislation (where referenced). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R6, Advance Income Tax Rulings and Technical Interpretations. This Information Circular and other Canada Revenue Agency ("CRA") publications can be accessed on the internet at http://www.cra-arc.gc.ca.
You have inquired about 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 you are involved. We understand that the fundraisers may be individuals or businesses. The confidentiality provisions of the Act prevent CRA officials from discussing a taxpayer's affairs with a third party without the taxpayer's written authorization. Therefore, we cannot comment on the tax implications to the fundraisers you mentioned in our phone conversation (Filion/XXXXXXXXXX).
Although we cannot comment on the tax implications to other specific taxpayers, we are able to provide the following general comments, which may be of assistance.
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.
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.
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 unclear based on your e-mail whether the current structure of the fundraising group meets the conditions as set out in paragraph 149(1)(l) and what the scope of the fundraising activities is in relation to other activities undertaken by the fundraisers.
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.
For specific questions with respect to the ability to obtain donation receipts in similar situations, you may wish to call the Charities Directorate at 1-800-267-2384. For general information, you may also visit their website at www.cra-arc.gc.ca/charitiesandgiving.
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.
We trust that these comments will be of assistance.
Yours truly,
Roger Filion, CPA, CA
Manager
Non-Profit Organizations and Aboriginal Issues
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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