Law Times

Law times • OctOber 27, 2008 FOCUS PAGE 11 ew federal guidelines on charitable fundraising may soon have an effect on estate planning, says an expert on non-profit law in Canada. "It would be a good idea for New guidelines may have effect on estate planning N BY GLENN KAUTH Law Times trust and estates lawyers who practise in this area to be aware of this," says Terrance Carter of Cart- ers Professional in Orangeville. Carter is referring to new pro- posed guidelines on acceptable fundraising activities released by the Canada Revenue Agency earlier this year. The policy fol- lows media reports, most no- tably those in the Toronto Star, which shed light on charities that spent up to 80 per cent of their fundraising revenues on generating the donations in the first place. Often, the high cost of fundraising was due to the use of expensive third-party compa- nies that canvassed for donations by phone or door-to-door. Essentially, the guidelines set out best practices organizations should follow in order to get or maintain charitable status under the Income Tax Act. The policy outlines prohibited conduct, for example, including a ban on activities leading to "exces- sive or disproportionate gain by individuals or corporations." It also specifies what costs chari- ties must report as fundraising. While CRA defines such expen- ditures as anything that includes Terrance Carter says the guide- lines raise 'many more ques- tions' than they answer. a solicitation of support, orga- nizations can exclude activities where "substantially all of the resources devoted to the activ- ity advance an objective other than fundraising," according to a CRA policy document. Even money spent on thank- ing people for their donations is a fundraising cost, Carter and his colleague Theresa Man wrote in a recent paper on the guidelines. Charities can, however, exempt some costs if they can show that "substantially all" — meaning 90 per cent or more — of the efforts put into the activity were for a purpose other than asking for money, Carter notes. They can also exempt expenses if the activity meets what CRA calls a four-part test that includes: a requirement that the main goal wasn't fundraising, that the event doesn't involve repeated requests for money, that the audience was chosen for reasons other than their ability to donate, and that the charity isn't using commis- sion-based remuneration related to the amount of money raised. Perhaps most significantly, the CRA policy sets out a grid for measuring whether a char- ity's overall fundraising expenses are acceptable. It bases the evalu- ation on the ratio of fundraising costs to fundraising revenues and classifies them as follows: • Rarely acceptable: more than 70 per cent, meaning the char- ity is left with less than 30 per cent of the money raised; • Generally not acceptable: 50 to 70 per cent; • Potentially not acceptable: 35 to 50 per cent; • Generally acceptable: 20 to 35 per cent; • Acceptable: less than 20 per cent. end of the year, for example, might have to report the costs of it even though the revenues might not arrive until later. "Will you want to do a fundrais- ing campaign at the end of your fiscal period? No," Carter says. "I think it makes more sense raise 'many more questions' than they answer, he says, noting it will likely take time for non- profit organizations and advisers to understand the policy and its implications. Particularly worri- some for Carter is the fact that the costs and revenues CRA pro- poses to look at deal only with the year in question. That means that an organization that holds a fundraising event towards the For Carter, the guidelines to average fundraising revenues over time," he adds. As well, Carter and Man's pa- per points that although CRA has set up the evaluation grid measuring fundraising costs to revenues, it has also established so-called "overriding factors" that may make a high ratio of expens- es more acceptable. Among those factors are good staffing processes and the use of volunteers to raise money, criteria Carter and Man argue are "highly subjective and sometimes vague." "As such, there is the real pos- sibility that inconsistencies might occur in the administration of the policy," the pair wrote. Another big concern is the fact that the policy would add a new measure of acceptable fund- raising practices beyond the one that already exists. Currently, Carter notes, they are governed by a disbursement quota man- dating that they spend no more than 20 per cent of the previous year's receipted income on rais- ing money and administration. Now, they'll have to meet the evaluation grid as well, some- thing Carter worries will be con- fusing for non-profit organiza- tions. "The problem we've got is we have to take fundraising costs and calculate them for two different purposes. I think chari- ties are going to be confused be- tween the two," he says. "It's just going to lead to a lot more work." Nevertheless, Carter says the proposed rules will have a signifi- cant impact on estate planning, particularly as people mull where to allocate their charitable contri- butions and which organizations they might want to steer clear of. "As people start to evaluate, it will be a factor that trust and estates lawyers and clients will want to consider when deciding where to allocate," he says, noting that non-compliant donors and or- ganizations could be subject to penalties by the CRA. After releasing the proposed guidelines earlier this year, the CRA responded to concerns stake- holders hadn't had enough chance to give their input on them by extending the timeframe for con- sultation until Aug. 31. Now, the agency is reviewing the feedback with a goal of finalizing the policy within the next few months and then releasing them publicly, ac- cording to a CRA spokeswoman. For his part, Carter says that al- though he has concerns, the goal of having the fundraising guide- lines is a good one. "As a matter of policy, I think it will be received and accepted well within the community," he says. "It's just too complicated at the present time." LT caseAlert www.canadalawbook.ca www.lawtimesnews.com CA023 (LT 1-2x5).indd 1 10/22/08 9:58:04 AM LT1027

• Cover
• Slip And Fall
• Focus On Trusts And Estate Law
• Eye On Hamilton