Unacceptable fundraising: deceptive or misleading; Unrelated business - Segment 5


So now we're going to move on to the next slide, "Unacceptable Fundraising Four: Deceptive or Misleading." Charities cannot deceive or mislead people when fundraising. The CRA takes the position that deceptive practices can cause significant harm by misleading donors or potential donors and by impairing the fundraising efforts of other charities, whether the conduct is intentional or negligent. Deceptive fundraising practices have a negative impact on public trust and on the integrity of the tax regime governing registered charities. This takes us back to the idea that charities are created to serve the public benefit, or the public good. A charity that deceives the public, whether intentionally or negligently, is causing harm that calls into question any good they might be doing through their charitable activities. Charities therefore have an obligation to ensure that their fundraising materials are accurate and reflect the actual position, mission, and activities of the charity.

Now we're going to move on to the next slide, "Indicators of Misrepresentation or Deception." Misrepresentation in fundraising solicitations are not acceptable. This could include misrepresentations about where a donor's funds will be used—sorry, about what a donor's funds will be used for, where the charity operates, what its programs are, and so on. Claims that 100% of the money raised by a third party will go to the charity or that 100% of money raised by the charity conducting its own fundraising will be used for charitable activities by the charity must always be made with care. 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. Failure to disclose fundraising costs to the public can be a concern for the CRA. But again, this is an indicator, rather than unacceptable fundraising in itself. The Income Tax Act requires charities to disclose their financial information on their Form T3010 including a set of financial statements. Although the CRA recommends providing as much disclosure to the public as possible, there is no requirement under the Income Tax Act to provide additional disclosures such as an annual report or breakdown of costs and revenues on a charity's website.

We're going to move on to the next slide scenario. In this scenario, a charity is raising funds by using statements that misrepresent its financial position, presumably in the hopes of getting more donations from the public. From the perspective of the CRA, it doesn't matter if the misrepresentation is deliberate or negligent. The charity is very likely carrying out a form of unacceptable fundraising, and therefore could be subject to compliance action.

Now we're going to move on to the next slide, "Section F: Fundraising that is Unacceptable Five: Unrelated Business." Now, the area of related business is a relatively complicated topic. However, as a general rule, it's fair to say that business activities and charities do not always sit easily together. Charities are limited in the amount and types of business activities they may undertake. As a very short summary, they may only carry out a related business. One occasional misconception is that if a charity carries out a business, but it devotes the majority or even the entirety of the revenue to its charitable programs, this makes the business acceptable; this is not the case. A business is considered a related business only if it meets certain very specific criteria described on our policy statement CPS-019, What is a related business. Charities should be very careful about entering into business activities. If a charity carries out an unrelated business, this is a form of unacceptable fundraising.

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