Mr. Terry de March
Director General
Canada Revenue Agency
Director General's Office
320 Queen Street
Ottawa, ON K1A 0L5

Dear Mr. de March:

We are writing to follow up on our meeting of August 14th at Imagine Canada’s offices in Toronto, regarding the CRA’s proposed policy on fundraising by registered charities. First, we are very appreciative that you, Neil Cochrane, Bryan McLean, and Isaac Piotrkowski took the time out of your busy schedules to discuss these complex issues with the sector representatives at the meeting.

We would like to thank CRA for tackling this difficult issue. As charities and nonprofits, we are proud of what we do and our service to our communities. We welcome measures that will improve our communities’ understanding and support of the sector. Certainly increased clarity around fundraising practices will greatly enhance the sector’s ability to raise funds to support its work.

This letter is further to our previous communications and our discussions on August 14th, which highlighted some of our continuing concerns about the guidelines as presented. Our comments are focused on the guidelines’ framework and some of the assumptions that surround, or appear to surround, the guidelines as a whole. Your request for suggestions for specific wording changes has been passed on to our constituents, and we have encouraged them to respond
individually.

GENERAL CONTEXT

Positive Role of Fundraising

We agree with CRA’s strong stance against tax shelter abuses. These abuses damage the sector’s reputation and we applaud CRA’s efforts to eliminate them. We are, however, very uneasy with what appears to be a further assumption that fundraising itself is inherently something charities should not do. Whether or not fundraising can be a charitable activity (based on certain parts of the Vancouver Society case, we suggest the law is not clear, but this letter does not take a position on the legal aspects of that issue), we believe the proposed guidelines should acknowledge the important role of fundraising and its increasing professionalization and complexity.

In our meeting you asked for suggestions on how the tone of the guidelines could be changed. In follow-up discussions we will be pleased to deal with specific areas of perceived negativity in the wording. Partly, however, this can be solved by how these guidelines are presented. This document will be an important public communications tool. To enhance it, more text about the context of fundraising might not only help public understanding, but also set a more positive tone. For example, CRA may wish to frame the guidelines within the context of this government’s tax incentives which significantly encourage individual giving. A general statement about the increasing importance of individual donations generated through fundraising to support charitable work might also be helpful.

We encourage CRA to present these guidelines as a first step in developing a structure that enables better disclosure and transparency. We agree that a higher standard of reporting, with more consistent disclosure, is needed for fundraising costs and practices. More consistent “inputs” will result in better and more consistent disclosure, which, we believe, is the goal of these guidelines. We applaud, support and will work with you to accomplish this. We appreciate that achieving consistency of inputs will require time, and we welcome your willingness to consider joint work with the sector and accounting profession to harmonize CRA and financial reporting requirements where possible.

SPECIFIC COMMENTARY

As mentioned during our meeting, there are a number of specific areas and approaches in the guidelines that we urge CRA to reconsider, either in presentation or in substance, to address the issues we raise. Some suggestions are contained within this letter, and we are committed to continuing to work with CRA to find solutions that will benefit the sector and its donors, as well as achieve CRA objectives.

The Grid: Encouraging Oversimplification

The core of the proposed guidelines is the fundraising cost ratio grid. The other material almost exclusively revolves around inputs to and application of the grid. Our comments in this section address the grid itself, and its uses. Comments in following sections address the inputs to the grid.

You have said the purpose of the grid is to provide CRA staff with a quick indicator to charities whose fundraising costs and practices may require further investigation, and that the grid is not meant to be a public tool. Now that the policy and grid are out for comment, however, this is a public document. As we have seen (1), the media will seize on the grid as a simple answer, and donors will make their decisions according to the grid. We urge CRA to take into account the inevitable negative impact of the grid on charities of all sizes and their ability to fundraise, and maintain public and donor trust and confidence. Admittedly not all charities will be impacted by the grid and some may applaud it as it will benefit them individually. The vast majority of charities including the smallest, however, are concerned. Some are “holding emergency meetings” to respond to the grid and the proposal in general (2).

We support greater disclosure about fundraising costs. However, if the ultimate goal of these guidelines is to increase consistency and transparency, we believe the proposed grid will not serve this purpose and may in fact be counterproductive. Some of our reasoning is outlined below.

1. Grid encourages oversimplification - Potential donors and the media will take its position on the grid as the indicator of the “worthiness” of a charity, and will look no
further than the grid, thereby potentially punishing worthy charities. The grid promotes
the illusion that fundraising is simple and easily understandable – and this is not the
case. An organization with high fundraising costs relative to others, may have excellent
reasons for high costs. CRA has itself set these reasons forth. Cost differentials could
be due to:

a. Type of fundraising used – large events are more expensive (in ratio terms) than fundraising by volunteers, for example
b. Sources of donations – large gifts carry a better cost ratio than small ones, but
these gifts typically take from three to five years to achieve, and require constant
stewardship
c. Size of charity, or stage in life cycle – smaller charities generally do not have
access to the most efficient types of fundraising. Direct mail is an effective way
of building a donor base, and is extensively used by smaller charities, but has a
higher cost ratio than an individual solicitation for a large gift to a major charity.
For smaller charities, an effective fundraising campaign may cost
proportionately more than an equally effective campaign for a large charity.

2. Focus on efficiency versus effectiveness - The grid approach implies that efficiency of fundraising is more important than its effectiveness. The lowest ratio (implying the best
fundraising practices) would be created by a large gift from one donor. An extreme
example of this was Player’s Theatre in Columbus, Ohio. They had workshopped a play
that went to Broadway – but had to close immediately when their one donor decided to
stop giving. This is very efficient fundraising, but not at all effective. Effective fundraising creates a broad and sustainable base from within the appropriate supporting communities.

3. Civic engagement - Raising funds from individual donors, who on the average give
quite small amounts (3), is inherently inefficient. However, charitable giving is about
more than just money. It is also about citizen engagement. By seeking the most
efficient fundraising cost, these guidelines inherently discourage charities from
soliciting the small donor. This is directly contrary to public policy (as evidenced by the
tax receipting regime) and sends a message of civic disengagement -- not civic
engagement.

4. Implication that “one size fits all” - this implied approach is very unforgiving of the diversity of the sector. Consider the differences in:

• Size of charity – $100,000 to $500 million;
• Geographic range – international, national or local;
• Age of charity – length of time in operation;
• Nature of the cause – general appeal such as a children’s disease charity, an
  unpopular cause such as a charity which helps insects, or a very specific appeal
  such as a small local organization;
• Fundraising methods – individual appeals, telemarketing, direct mail, third-partyrun special events;
• Source of donations – individuals, corporations, special interest groups;
• Ability to engage prominent volunteers to assist in fundraising – local poverty
  association vs. large university or hospital foundation; and
• Time frame of the appeal – single event or multi-year campaign.

5. Grid will disadvantage multi-year fundraising projects - A perfect example is a multi-year capital campaign. CRA has recognized these gifts may take years to acquire, so that in the initial years of the campaign, fundraising costs would be “unacceptably” high. This, without explanation, would impede the charity’s ability to raise further funds – if a charity’s fundraising costs are high, without an accompanying context and explanations of fundraising costs the donor may look elsewhere. Thus the disclosure of the ratio will impede the very objective it is meant to expedite – the effective and transparent raising of funds so the charity can carry on its work. Disclosure of the ratio without explanation will also make charities hesitant to undertake multiyear fundraising campaigns, as they will feel challenged to meet an annual “acceptable” fundraising ratio.

As stated, we believe there are more fundamental ways through greater disclosure to achieve the purposes the grid is seeking to achieve. To achieve a level playing field, however, requires consistency in cost allocation.

Cost Allocation

There is no question that the charitable sector – and the public – will welcome guidance on consistent allocation of fundraising costs, and indeed the guidelines for allocating costs are very thoroughly set out. We do not believe this wealth of detail is the most effective approach, however. Specifically:

1. Subjectivity - Despite their thoroughness there is considerable subjectivity, and thus ability to manipulate the result, in the proposed cost allocation guidelines. Consider for example the “but for” test, with its exception for an activity that “demonstrably furthers one of the charity’s purposes”. Or consider the “substantially all” test, where a charity must judge the prominence of a donation appeal, to determine the amount of fundraising expense related to it.

Such subjectivity will allow charities to interpret the guidelines so as to minimize
fundraising costs, and therefore show a more acceptable fundraising ratio. This will
advantage larger charities, who have more scope to allocate costs among different
activities.

2. Complexity - Smaller charities with limited time and human resources may find
themselves disadvantaged by these guidelines due to their complexity. The guidelines are quite dense, and as written may be more technical than a smaller charity, or a volunteer filling out the T3010A, will be able to understand. Such a charity may well not submit anything at all, or report zero fundraising costs – which will increase noncompliance rather than diminish it. The CRA has made significant progress in making itself more accessible to charities, and we hope these guidelines can be simplified and presented in such a way as to be accessible to smaller and less sophisticated charities.

3. Applicability to smaller charities - The “checklist” for very small charities is helpful. However, many small and medium sized charities will not meet these tests, and with their intertwined fundraising and charitable expenses, they may have difficulty deciding how to apply the guidelines. In charities’ anxiety to comply, the administrative burden to smaller charities could become significant.

4. Lack of revenue guidelines - Much detail around cost allocations is proposed, but there is no mention of what is acceptable fundraising revenue.

Suggestions for Improvement

We suggest the effects of subjectivity and complexity may be lessened by simplifying the guidelines. We understand the T3010A is being revised, and this would be an opportunity to include the following in the T3010A:

1. An added (narrative) section on the T3010A where the charity must disclose its cost allocation methodology and other major assumptions used in determining its fundraising expenses and revenues, and
2. A section in the T4033A containing simplified instructions for calculating fundraising revenues and expenses. Including this in the T4033A, will ensure that small charities and preparers who are unfamiliar with the T3010A, see the guidelines in simplified and more easily understandable form. The detailed guidelines may be referenced in the T4033A for those who require further information.

Whether included in the T4033A or not, we strongly believe that a simplified version of these guidelines, when finalized, will increase charities’ ability to comply with them. Sector representatives will be happy to work with CRA to produce a simplified version for publication. FAQs would also be helpful in aiding compliance.

Third-party fundraising

Setting the context of the role of third-party fundraising might be helpful. As you heard at our meeting, many charities rely on an extensive network of small donors. Professional marketing techniques, when used correctly, are an important part of their fundraising activities. However, the proposed guidelines imply that third-party fundraising should not be used, or its use should be minimized. After our meeting, we now realize that the intent of these sections was to prevent charities from becoming excessively dependent on or not conducting due diligence before committing to contracts with consultants. We agree with this goal but the policy as written does not clearly convey this. Often the use of third-party fundraisers is in fact prudent, for the following reasons:

1. No other practical alternative - some charities are too small to have in-house
fundraisers, either staff or volunteer. If not for third-party fundraisers, these charities would not survive.
2. The most economical way to raise money - in-house fundraising staff is scarce and therefore expensive, often more expensive than other professional staff, as these proposed guidelines recognise. Third parties can provide a limited-time, contracted service, and well-written contracts provide safeguards for the charity.
3. Effective fundraising -third parties almost always have ways of contacting a potential donor pool that the charity itself might not have. The third party might also have a larger potential donor pool than the charity itself.
4. Established fundraising method -third-party fundraisers have proven their
effectiveness. Without professional third parties, fundraising would not be done as
cheaply or as effectively as it now is – for the most part, without undue risk to the charity or undue benefit to the third party.

Suggestion for improvement

The proposed fundraising guidelines state that “activities where most of the gross revenues go to contract non-charitable third parties increase the risk of unacceptable fundraising”. We agree that fundraising where most of the benefit goes to third parties, by commission or otherwise, is not acceptable. However, not all third-party fundraising is “bad”. A well-written contract will protect the charity from abuse and maximize the return on its investment. We therefore request clarification that third-party fundraising is not “bad” in and of itself.

The guidelines appear to suggest that third party fundraising ipso facto confers an undue benefit (on the third party). This ignores the many good contracts which protect the charity and minimize the risk to it, of non-delivery on the part of the contracted fundraisers. Perhaps the guidelines could be simplified to prohibit the sole-source approach, rather than suggesting all third-party contracts are suspect.

Contract checklists or sample third-party fundraising contracts might also be posted onthe CRA website.

Phase-in period

We believe that whatever guidelines are eventually adopted should contemplate a phase-in period. We understand these guidelines are clarification of existing policy. However, they are new to charities. Charities will therefore need time to adapt fundraising practices, renegotiate third-party fundraising contracts if necessary, and gather the information to make proper disclosure of fundraising revenues and costs, and associated information. A minimum of one full fiscal year from the announcement of the guidelines would be required.

In addition, the administrative process of developing and implementing the “additional
information” (written staffing, procurement, fundraising, and evaluation policies) is extremely onerous for smaller charities in particular. In fact, we would question if the costs of developing such policies outweigh the benefits. We request clarification that charities are advised, but not required, to prepare this additional information.

Conclusion

To summarize, we have serious concerns about the following issues

• The existence of the grid, particularly without explanatory notes and context, and
  its effect on charities’ ability to fundraise;
• Subjectivity of cost allocation decisions, leading to inconsistent fundraising ratio
  calculations;
• The implicit and guiding assumption that fundraising is an unnecessary and
  tainted activity, particularly when done through third parties; and
• The apparent preference of efficiency over effectiveness in fundraising, which we
  believe is an impediment to charities’ fulfilling their mission to the community.

We also recognize the need for constructive alternatives and have tried to incorporate some of these into our response. Rather than relying on a fundraising ratio, we ask you to address the issues of transparency and consistency in calculating fundraising costs. We appreciate that the intent and application of these guidelines must be communicated very carefully and clearly.

We ask you to engage in a process with the sector to put in place guidelines which will promote greater transparency and consistency in reporting, and to ensure these are communicated clearly to the sector and to the public.

Sincerely yours,

Georgina Steinsky-Schwartz, President and CEO President and CEO Executive Director
Imagine Canada

Paulette Maehara, Assocaion of Fundraising Professionals

Deirdre Freiheit, Health Charities Coalition of Canada

Charities in support of this letter:

Alzheimer Society Canada
Amyotrophic Lateral Sclerosis Society of Canada (ALS Canada)
The Arthritis Society
The Association for the Rehabilitation of the Brain Injured
Belfry Theatre
Bloorview Kids Foundation
British Columbia Lung Association
Burns Bog Conservation Society
Calgary Chamber of Voluntary Organizations
Calgary Counselling Centre
Canadian Breast Cancer Foundation
Canadian Cancer Society
Canadian Conference of the Arts
Canadian Crafts Federation
Canadian Cystic Fibrosis Foundation
Canadian Diabetes Association
Canadian Foundation for AIDS Research
The Canadian Hearing Society
Canadian Hospice Palliative Care Association
The Canadian Liver Foundation
Canadian Lung Association
Canadian Orthopaedic Foundation
Canadian Wildlife Federation
The Children’s Emergency Foundation
Chinook Regional Hospital Foundation
CNIB Canada
Covenant House
Crafts Association of BC
Crohn’s and Colitis Foundation of Canada
David Thompson Health Trust
Easter Seals Canada
Evergreen
The Foundation Fighting Blindness – Canada
The Hearing Foundation of Canada
Heart and Stroke Foundation of Canada
Hope for Children Foundation
Huntington Society of Canada
International Dyslexia Association, Ontario Branch
Jessie's Hope Society John Howard Society of Ontario
Kidney Foundation of Canada
Kids Help Phone
The Learning Disabilities Association of Canada
The Lung Association
Lung Association of Saskatchewan
MADD Canada
Make-A-Wish Canada
Manitoba Crafts Council
March of Dimes Canada
Markham Stouffville Hospital Foundation
Metal Arts Guild of Canada
Mount Sinai Hospital Foundation of Toronto
Multiple Sclerosis Society of Canada
Muscular Dystrophy Canada
New Brunswick Lung Association
Dr. Noble Irwin Regional Healthcare Foundation Inc.
Ontario Crafts Council
Ontario Nonprofit Network
The Organ Donation and Transplant
Association of Canada
Osteoporosis Canada
Ottawa Arts Court Foundation
Ovarian Cancer Canada
Oxfam Canada
Parkinson Society Canada
The Perley and Rideau Veterans’ Health
Centre Foundation
Peterborough Regional Health Centre Foundation
Plan International Canada Inc.
Rouge Valley Health System Foundation
Salvation Army in Canada
Saskatchewan Craft Council
Sky Works Charitable Foundation
Soulpepper Theatre Company
Spina Bifida and Hydrocephalus Association of Canada
Theatre SKAM
Toronto Public Library Foundation
United Talmud Torahs/Herzliah High Schools
United Way of Canada – Centraide Canada USC Canada
Volunteer Hamilton
Volunteer Vancouver
World Vision
YMCA Canada
YMCA of Greater Toronto
York University Foundation
YWCA Canada
YWCA Vancouver

Total: 86

----------------------------------------------------------------------------

1 “Watchdog sets Charity Rules”, Kevin Donovan, Toronto Star, May 5, 2008

2 “Small Charities Brace for Change”, Carol Goar, Toronto Star, August 18, 2008

3 The average annual donation is $400, according to the 2004 Canada Survey of Giving, Volunteering, and Participating. Hall, Michael; Lasby, David; Gumulka, Glenn; and Tryon, Catherine. Statistics Canada, 2006, Ottawa, Ontario.