Blumbergs Professional Corporation is involved with many charity applications each year. In this series, CRA Charity Application Graveyard, we aim to provide groups considering charitable status applications with insights into common issues the CRA encounters, based on our analysis of access to information documents, CRA letters, and the CRA’s Charities and Giving website. These reasons given in the Charity Application Graveyard are not presented in order of importance.
CRA identifies the following issue:
Private foundation operating a business
All charities registered under the Income Tax Act must be established and operated exclusively for charitable purposes. Although a charity can use some of its resources for fundraising to support its charitable activities, fundraising itself is not a charitable purpose.
The requirements of the Act are different depending on a charity’s designation. For example, Paragraph 149.1(4)(a) of the Act states that a charity designated as a private foundation cannot carry on any kind of business activity. In general terms, a business involves commercial activity (in other words, it generates revenue from providing goods or services) to earn profit. Carrying on a business suggests that the commercial activity is a continual or a regular operation. For instance, making sales or providing services daily or even weekly, with the operation requiring ongoing care and attention, may be seen as carrying on a business.
Most fundraising events are business activities. They typically involve the sale of goods and services to get income. Although the Act does not allow a private foundation to carry out fundraising activities that amount to carrying on a business, a private foundation can carry out some occasional business-like transactions if they are not operated regularly or continually (for example, an annual garage sale). In making our determination, we consider whether the fundraising event:
- has a clear start and end point (“carrying on a business” suggests continual operations)
- occurs so regularly and frequently that it amounts to carrying on a business
For more information on business activities carried on by registered charities, see Policy Statement CPS-019, What is a Related Business?, by going to canada.ca/charities-giving, then clicking on “Registering for charitable or other qualified donee status,” followed by “Policies and guidance.”
Not everything is charitable, and sometimes, for some groups, depending on what they want to accomplish and what their sources of revenue are, it may not even be desirable to be a registered charity. One thing is clear – CRA spends a lot of time and resources reviewing charity applications, and unless your application meets all of the charity law requirements under the Income Tax Act and common law, they will not be able to register your organization as a charity.
If you require assistance with your charity application, you may be able to retain our law firm, and you can contact us here. It is best to contact us before establishing the entity and making an application to CRA, as this will minimize costs, changes and delays.