A Practical Way to Support Ministry

Transcription

1 Deputized Fundraising: A Practical Way to Support Ministry

2 A WORD FROM OUR CEO It seems that every day there are more and more regulations affecting Christian ministries. Keeping up with important developments can be overwhelming and time-consuming. Since our founding in 1972, church treasurers, pastors, administrators, and board members have relied on expert help and training from the Canadian Council of Christian Charities. Every year about 96% of our supporters renew their membership because of the high-quality, practical resources they receive from us. Whether it is learning how to perform their duties, keeping up with all the changing rules and regulations, or finding out about the best practices, we make their lives easier as a one-stop resource. Our staff of accountants, lawyers, and ministry credential holders deliver numerous seminars, workshops, and articles every year to help our members improve their effectiveness and efficiency. Our member support team answers thousands of questions each year on topics like n receipting, accounting & finance; n human resources, payroll & policies n clergy residence deduction; n church board governance; n stewardship; n charity regulation. We hope you enjoy this complimentary resource. It will give you a glimpse of some of the fabulous resources we provide. We d love to include you as part of our membership community that encompasses over 3,200 faith-based charities from coast to coast. To find out more about our great membership benefits and moneysaving affinity programs, visit Rev. John Pellowe, MBA, DMin CEO This publication is provided by CCCC to its members and other authorized users as a general information service only and as such does not constitute legal or professional advice. Every attempt has been made to provide accurate and current information. However, legislation and regulations, common law, and CRA s administrative practices may have changed since this information was published. Readers should obtain competent legal and other appropriate professional advice for their individual needs before applying any information contained in this publication to their specific situation. The publisher, authors, and editor expressly disclaim all and any liability to any person, whether a purchaser of this publication or not, in respect of anything done or omitted to be done by such person in reliance upon the contents of this publication. 2 I Deputized Fundraising: A Practical Way to Support Ministry I Canadian Council of Christian Charities

3 DEPUTIZED FUNDRAISING: A PRACTICAL WAY TO SUPPORT MINISTRY DEREK ROSS The purpose of this article 1 is to help Christian charities, such as churches and mission organizations, deal appropriately with donor-directed contributions or gifts. Directed giving has long been recognized as one of the most effective methods of raising funds for charitable programs. In many fundraising models, particularly those used by churches and mission organizations, donors are asked to designate their gifts to provide funding for a specific program that includes employment of a particular missionary. In other cases, charities engaged in short-term mission trips will rely on those participating in the trip to raise the necessary funds. This form of fundraising is commonly known as directed giving or deputized fundraising. Many donors who respond to these types of requests have a close personal or family relationship with the missionary. What are the boundaries surrounding such gifts, and what issues should charities and fundraisers be aware of when soliciting these donations? These questions are addressed in this article, particularly as they relate to fundraising for both long-term and short-term missions. The General Rule Generally speaking, the Canada Revenue Agency (CRA) does not allow a charity to issue a tax receipt to donors who ask that their gift benefit a specific person or family or be directed to a particular program that will benefit the donor (or someone related to the donor). 2 This is because the law requires that a charitable gift be for the public benefit, so a private gift between individuals, or one that results in a benefit flowing back to the donor, is generally not charitable and is viewed as private benevolence. However, the Canada Revenue Agency accepts that donations may be subject to a general direction from a donor that they be used in a particular program, provided that (1) no benefit accrues to the donor; (2) the directed gift does not benefit any person not dealing at arms length with the donor; (3) decisions regarding utilization of the donation within a program rest with the charity. 3 Provided these criteria are met, a contribution made to a charity that is for the advancement of the charity s objects is always a gift for income tax purposes. It is a gift to the charity even if the donor making such a contribution is a relative or friend of the missionary who is carrying out the charity s work. Some would claim that such a contribution is not made without self interest. The concern is the close blood or family relationship between the donor and the designated person and that such a linkage makes the contribution suspect, because it takes on characteristics of private benevolence. Such a concern, however, is not warranted where the directed gift is made in support of a specific mission project that has been approved by the charity, and which furthers its charitable purposes. Even if a portion of that gift is ultimately used by the charity to compensate the related missionary for carrying out that charitable work, it is not private benevolence. This is because the charity has predetermined that the ministry services of the missionary will further the religious objects of the charity, and it is in control of the application of the funds. Although one might think that the gift ultimately benefits the missionary because it may be applied toward his/her salary, the missionary is not the beneficiary of the gift. The missionary is employed by a charity to implement the charitable purposes of that 3 I Deputized Fundraising: A Practical Way to Support Ministry I Canadian Council of Christian Charities

4 DEPUTIZED FUNDRAISING: A PRACTICAL WAY TO SUPPORT MINISTRY church or organization. The missionary receives consideration in the form of employment income because of the services rendered to the organization. The directed gift by the donor simply makes it possible for the charity to carry out its mission work. The true beneficiaries are the individuals that are being ministered to by the charity through the missionary s work. Provided that the gift is made within this framework, the charity can acknowledge such gifts with an official receipt for income tax purposes. This is because the directed gifts received from such donors are made for the advancement of the religious purposes of the charity, not for some private or personal purpose. To ensure these conditions are met, the charity must not act as a flow-through of private gifts (i.e., private benevolence ) between donors and the missionary. Some practical suggestions to demonstrate that monies raised through deputized fundraising do not result in a personal benefit to the missionary, but are truly gifts to the ministry s charitable programs, are as follows: n It is important to make it clear, both through internal policies and communications to donors, that gifts to the mission are to support the charitable work carried out by the organization, and not to the individual. Using personalized language, such as raising my own support, can cause confusion in this regard, because it creates the impression that the gift is to benefit the individual, as opposed to its true purpose, which is to carry out the charitable purposes of the ministry. It would be more accurate for the gift to be directed to a specific project, as opposed to a named missionary (this can be reflected on the memo line of a cheque, for example). n Reference to projects, as opposed to named individuals, should also be reflected in the ministry s internal documents, such as accounting records, as well as financial reports, receipts, and donor letters. n Ensure that truthful and clear communications take place between the missionary and the donor. The missionary should make it clear that the gift is to the charity, and it is the organization, not the missionary, that ultimately has control and direction over the funds. n The program, and not just the individual missionary, should be emphasized in presentations to congregations/ supporters, as well as ministry materials, such as prayer cards, newsletters, social media, and websites. n The charity should consider including a clarifying statement about use of funds in its fundraising materials and support letters. For example: Funds are raised with the understanding that ABC Mission has complete direction and control over the use of all donated funds. n The charity should establish a salary cap and base salary for the missionary, based on a pre-determined policy, rather than allowing the individual to simply receive the amount that he or she is able to raise. There should be no representations to donors that contributions will be paid as salary or expenses to a particular person. A consistent policy and rationale should be applied to all workers, but may be adjusted for cost-of-living issues, particularly for missionaries working in different countries. n The charity should have policies in place to address situations where contributions are insufficient (or, in the alternative, exceed the amounts necessary) to carry out the project (over/under subscriptions). In addition, the charity should have a policy in place to determine what happens to any surplus funds remaining after the missionary leaves the organization or when his/her term ends. n A charity should not be a conduit for private contributions designated for the personal use of the missionary, over and above the required support level set by the charity (i.e., as needed by it to pay the missionary s salary or wages). An example would be an individual who wishes to send a Christmas gift to a missionary. Such a contribution is not a gift for income tax purposes, because the church and the mission organization do not acquire control over the payment, and the contribution is not made exclusively for the charitable purpose of the charity. While such a gift is generous and laudable, it should be made privately, and given directly by the donor to the missionary (i.e., independently of the charity and without a tax receipt). Maintaining Direction and Control Ultimately, should there be a challenge or audit of the ministry, the charity would need to establish that the gifts in question were truly gifts to the organization, and not to an individual. To do so, it must be clear that the organization has full control over the donated funds and discretion as to their use. At a minimum, the charity must determine the parameters of the mission or program, including its objectives and activities, and when the program or employee will be terminated. The charity should have written agreements with each missionary setting out the charitable activities that are to be carried out by the missionary on the ministry s behalf. The missionary should also provide regular reporting to the ministry concerning his/her ongoing activities. Although the Canada Revenue Agency has not yet released any guidance on deputized fundraising, the Internal Revenue Service (U.S.A.) has provided some guidance, which, while not binding in Canada, set out some best practices for charities to maintain direction and control where a deputized fundraising model is used, including the following: n Control by the charity of donated funds through a budgetary process; n Consistent exercise by the charity of responsibility for establishing, reviewing, and monitoring the programs and policies of the organization; 4 I Deputized Fundraising: A Practical Way to Support Ministry I Canadian Council of Christian Charities

5 DEPUTIZED FUNDRAISING: A PRACTICAL WAY TO SUPPORT MINISTRY n Reimbursements of legitimate ministry expenses approved by the organization pursuant to guidelines approved by the governing body. Reimbursement must be set by considerations other than the amount of money a deputized fundraiser collects; n Thorough screening of potential staff members pursuant to qualifications established by the organization, and that are related to its exempt purposes and not principally related to the amount of funds that may be raised by the staff members; n Meaningful training, development, and supervision of staff members; n Staff members assigned to programs and project locations by the organization based upon its assessment of each staff member s skills and training, and the specific needs of the organization; n Regular communication to donors of the organization s full control and discretion over all its programs and funds through such means as newsletters, solicitation literature, and donor receipts. 4 Considerations for Short- Term Mission Projects All of the above principles also apply to directed contributions made for a shortterm mission project. A volunteer for a short-term mission project is volunteering to help achieve the charitable purpose of the charity. The beneficiaries of such a project are those who are ministered to, not those who deliver the program (although they might also indirectly benefit by learning to understand and appreciate issues faced by the disadvantaged). If such a volunteer solicits contributions to help pay for the costs of carrying out the project, including the reimbursement of ministry expenses incurred by the volunteer (e.g., travel), such directed contributions are received by the charity for its charitable purposes. Even if related persons or the volunteer make contributions to cover the costs of the short-term mission project, the contributions are gifts for income tax purposes and can be receipted. No direct valuable consideration is received by the volunteer in such a situation, provided that all amenities provided to him/her (e.g., accommodations, meals, travel) are reasonable and are directly related to the charity s work. Again, however, charities should implement the practices discussed above to ensure that the mission trip is truly the ministry s activity, over which it has direction and control. Churches should develop policies that will govern: (a) how mission trips will be approved as a ministry of the church (b) the qualifications necessary for participants in the trip For example, a church should submit all proposed mission trips, including their objectives, to the board for approval. A church could develop criteria for participants that might require them to n be a member of the church; n be an adherent to the church s statement of faith; n be committed to evangelism; n complete an application to participate; n undergo pre-trip training. These practices will help a church demonstrate that it is exercising control over its programs and has ultimate decisionmaking authority over the mission projects. For more information on this topic, see the CCCC Bulletin Article, Developing a Short- Term Missions Trip Policy for Your Church. 5 In addition, churches engaged in shortterm missions should consider the following scenarios: A PARTICIPANT DOES NOT RAISE HIS/HER TARGET It is an unfortunate scenario, but it does occur. If the church decides that anyone who does not meet their fundraising target cannot participate in the trip, then any gifts from the volunteer or his/her family members may be seen as a requirement rather than a voluntary gift. The CRA s position is that the payment of expenses by a volunteer associated with a charity s work would not constitute a gift if the volunteer is somehow compelled to assume them. 6 This is because, in order to be considered a gift at law, a contribution must be voluntary, not a requirement. To avoid this situation, churches could consider setting a higher fundraising goal for all participants so that any excess funds raised can help offset the shortages of less successful fundraisers. The fact is that some people will be better at raising funds than others, and fundraising abilities should not be the determining factor in assessing who is best equipped to carry out the church s mission objectives: someone may not able to raise enough funds for any number of factors, but may nevertheless be a great asset to the project. THE MISSION TEAM AS A WHOLE IS UNABLE TO RAISE ENOUGH FUNDS FOR THE TRIP In cases where there simply is not enough support raised to proceed with the trip, it may be necessary to cancel the project. To mitigate this possibility, churches may wish to use pledges before committing to a trip, which can provide an initial indication of support. If the project must be cancelled, however, donations should not be returned to the donors, because they have made a gift to the ministry, not to individuals (the same applies if one individual is unable to participate the funds they raised should not be returned). To avoid complaints or confusion from donors, it should be clearly communicated from the outset that, if the project cannot be completed, or if excess funds are raised, the board may redirect the funds for another program or project, such as the church s general missions fund. It is important that donors are made aware of this before contributing to the project. CCCC has a sample policy that charities can consider adopting, in consultation with their own professional advisors to fit their specific needs. 7 5 I Deputized Fundraising: A Practical Way to Support Ministry I Canadian Council of Christian Charities

6 DEPUTIZED FUNDRAISING: A PRACTICAL WAY TO SUPPORT MINISTRY Working with Another Charity Frequently, churches encourage or will accept contributions directed for mission programs carried on by other mission organizations, either denominational or interdenominational. Sometimes such directed contributions are for specific missionaries employed by the other organization. Mission programs and missionary support clearly fall within the mandate of every Christian church. Where a church encourages or accepts directed contributions for other mission organizations or specific missionaries employed by such other organizations, the church has made a conscious decision to pursue its missions objective either in whole or in part by such process. The church receives such directed contributions for its own purposes and, by passing them on to the other mission organization, fulfills its mandate. Provided that the other mission organization is a Canadian registered charity (i.e., a qualified donee), the charity may accept directed contributions for missionary projects of that other charity. Some Directed Contributions May Not Qualify as Gifts If a short-term mission project permits a volunteer to enjoy a time of vacation or recreation for the volunteer (i.e., a period of time that is more than ancillary and incidental to the project), then a directed contribution made by the volunteer for the project and any donor may not qualify as a gift for income tax purposes, because it results in a personal advantage or consideration flowing back to the volunteer. While it may be appropriate to set aside some personal or recreational time in the project s schedule, it should be reasonable and ancillary to the time spent carrying out charitable work. Although there are no definitive guidelines from the CRA, CCCC suggests that any personal time taken while on a mission trip should not exceed the time one would take off in a regular full-time work environment. Any personal costs (e.g., tours, souvenirs) should remain the volunteer s responsibility to pay. It is important for volunteers to be aware that the short-term mission project exists to carry out the charity s charitable work. It should not be confused with a sightseeing trip or a vacation. Any personal time that could be seen to be more than ancillary or incidental to the project could cast doubt on the primary purpose of the trip. If challenged and perceived as providing an excessive benefit to the volunteers (e.g., more than incidental vacation time), all contributions could be denied for tax deduction purposes for all donors to the project. Significant care must be taken to ensure that any personal time for the volunteers (either before, during, or after the project) remains reasonable in the context of the length of the trip and the work time put in. 8 Conclusion It is appropriate for a charity to issue an official receipt for income tax purposes for any directed contribution where the charity can show that n the gift is for projects or programs which are under the control of the charity; n the charity has the ultimate control over the disbursement of directed contributions; n no benefit is returned to the donor or a person not at arm s length to the donor as consideration for the contribution (i.e., it is not private benevolence). Endnotes 1 This article incorporates excerpts taken from an earlier CCCC Bulletin article, Designated Giving: A Practical Way to Fundraise. 2 See Canada Revenue Agency Summary Policy CSP-G05, Directed (September 3, 2003), online: < csp/csp-g05-eng.html>. 3 Ibid. See also Registered Charities Newsletter (No. 8 Spring 1999), online: < gc.ca/e/pub/tg/charitiesnews-08/news8-e.html>. 4 Internal Revenue Service (Exempt Organization Office), letter issued March, 2000, signed by Mr. David Jones, Chief of Review Branch. The CRA has also published Guidances which set out ways in which charities should exercise direction and control over the use of their resources. See CG-004, Using an Intermediary to Carry ouy a Charity s Activities within Canada (June 20, 2011), online: < and CG-002, Canadian Registered Charities Carrying Out Activities Outside Canada (July 8, 2010), online: < 5 CCCC Bulletin Issue 3, 2011, online: < cccc.org/bulletin_article/316>. 6 CRA Policy Commentary CPC-025, Expenses Incurred by Volunteers (February 26, 2003), online: < chrts/plcy/cpc/cpc-025-eng.html>. 7 A sample Donor Restricted Gift Policy is available online at: < members_sample_documents_view/html/10>. 8 See paragraph 3 of CRA Policy Commentary CPC- 025, Expenses Incurred by Volunteers (February 26, 2003), online: < chrts-gvng/chrts/plcy/cpc/cpc-025-eng.html>. Want access to a full range of practical, expert resources? Become a member TODAY and start receiving all the benefits that membership with CCCC has to offer. SEE PAGE 7 & 8 TO LEARN MORE AND TO APPLY FOR MEMBERSHIP. 6 I Deputized Fundraising: A Practical Way to Support Ministry I Canadian Council of Christian Charities

7 A CCCC Membership has so many benefits. If you re finding it difficult and time consuming to keep up with all the legal and administrative requirements of running a ministry CCCC can help! A membership with CCCC offers solutions for everyone on your ministry team: Pastors & Staff > and phone support for your questions on charity topics > Online training > Access to health insurance, a pension plan, and emergency travel insurance > Discounts on seminars and conferences Board Members > Exclusive online resources and downloads (including sample policies and templates) > Discounts on directors liability insurance Treasurers & Administrators > Fillable, saveable online T3010 > Access to the Canadian Ministry Compensation Survey > Discounts on property insurance, website solutions, and office supplies MEMBERSHIPS $225 Membership also includes: > 5 issues/year of the CCCC Bulletin to keep you updated on new developments affecting charities > A free hard copy of the Charities Handbook plus unlimited digital access 7 I Deputized Fundraising: A Practical Way to Support Ministry I Canadian Council of Christian Charities

8 CCCC AFFILIATE MEMBERSHIP APPLICATION TO APPLY ONLINE, GO TO CCCC serves over 3,300 ministries by providing practical, affordable resources that help them operate in an exemplary, healthy, and effective way. CCCC affiliate membership is valid for the calendar year. Members must be Canadian registered charities. Date of Application CRA Number or Applying for CRA Number Name of Church or Organization Website Street Address Mailing Address (if different from above) Organization s City Province Postal Code Telephone Fax I heard about CCCC Membership from: Denominational Affiliation (if any) Primary Focus (e.g., local church, counselling, youth ministry, relief & development.) ANNUAL REVENUE (from line 4700 of T3010) is $ ANNUAL REVENUE 2016 FEE $0 $300,000 $225 $300,001 $675,000 $420 $675,001 $999,999 $550 $1,000,000 or more $785 PAYMENT INFORMATION Please charge $ to my credit card. I will pay by: VISA Mastercard Amex Cheque Card # Name of Cardholder (Please print) / Expiry Date Signature CCCC BULLETIN As an Affiliate Member you may list up to 3 names to receive the Bulletin. Primary Contact: Name Position Address CCCC Bulletin format: n Hard Copy n Name Position Address CCCC Bulletin format: n Hard Copy n Name Position Address CCCC Bulletin format: n Hard Copy n BEST PRACTICES CCCC encourages all affiliate members to use their best efforts to: Form an active governing board that holds regular meetings, creates appropriate policy, maintains effective control, and provides strategic direction. Establish appropriate systems for financial & internal control, transparent financial reporting, and fair treatment of staff and volunteers. Comply with federal, provincial, and municipal laws and regulations. Serve the interests of donors, members, and beneficiaries in an ethical way. Protect the confidentiality of personal data. Be open and honest in dealing with the public. We understand that affiliate membership does not entitle us to use the CCCC logo or the CCCC Seal of Accountability, which is reserved exclusively for CCCC Certified members. Signature of Applicant Date