Number 50 August 2009 Third Party Fundraising Events Conducting fund raising events to grow a fund at a community foundation is a common activity by many donors. People have come up with fun and often unique ways to raise funds and awareness for the foundation and in some cases, specific funds. While growing the assets is the main goal, it is also common for donors or organizers to ask the foundation to undertake the charitable tax receipting of these events, better known as third party events. This Tips and Tools will outline some considerations a community foundation should have in place through a Third Party Events Policy. The purpose of establishing such a policy is to ensure all events undertaken in support of the community foundation are successful, positive experiences that reflect well on the foundation within the community and do not strain resources of foundation staff and volunteers. A policy will help external groups that organize third party events have a clear understanding of what is required of them and what assistance will be given by the foundation in order to run a successful event. What is a third party event? A third party event is a fundraising initiative organized, staged and funded by a community group, club, business or individual(s) who wish to raise money on behalf of a particular registered charity, in this case, the community foundation. Scenarios As part of our charitable status under the Income Tax Act, registered charities can issue official donation receipts to donors for gifts. This tax-receipting privilege is not to be casually farmed out to third parties, even if some of the resulting funds will be flowing back to the charity. A charity that substantially relinquishes to a third party its receipt-issuing function or the control over the funds that are donated to it can jeopardize its registered status. There are two scenarios that a foundation may need to consider:
1. A registered charity can enroll a third-party organization or retain a fundraiser or other contractor as an agent to organize a fundraising event. However, the charity should maintain control over all monies that are earned as part of the event, and over the receipts that are issued for part of those monies. 2. If the foundation does not run the event substantially by itself, through its own employees or volunteers, but instead an organization, business or individual wish to hold a fundraiser on behalf of the foundation it should: put in place a written agreement setting out the protocols of the fundraising arrangement; ensure that official donation receipts are only issued to donors for the eligible amount of the gift; ensure that official donation receipts are signed by an authorized individual in conformity with ss. 3501(1)(i), 3501(2), 3501(3) and 3502 of the Income Tax Regulations; be able to provide to the Canada Revenue Agency a full accounting of the monies or that portion of the monies donated to the foundation, and the receipts that were issued in return; and be able to account to the Canada Revenue Agency for the amount of the advantage received by the participants as a result of their participation in the fundraising event. More often than not, it is the second scenario that many community foundations are involved in so we will focus on the above 5 key points raised by CRA. These points should be covered in a policy on 3 rd party fundraisers. Written Agreement 1. A written agreement outlines the protocols for anyone who wishes to organize such an event. This could include the following: a. Submission of a proposal that describes: i. Nature and timing of the event ii. List of confirmed and prospective sponsors iii. Identify the key contact person(s) running the event iv. Set out an acceptable benefit to the Foundation and agree on how the benefit will be described (e.g. all proceeds to, in support of ) v. Include estimated revenue and expenses vi. Approve the use of the foundation s name and/or logo in the promotion of the event.
Acceptable Benefit 2. If a portion of the ticket price is receiptable for income tax purposes AND the net proceeds from the event are to be placed in a permanently endowed fund, then all promotion and tickets for the event must state the following (or language with similar intent): net proceeds to create a permanently endowed fund at The XXX Community Foundation. 3. If a portion of the ticket price is receiptable for income tax purposes AND if net proceeds from the event are to be placed in a non-endowed fund, then all the promotion and tickets for the event must state the following (or language with similar intent): net proceeds to benefit the Fund held at The XXX Foundation. 4. If the Foundation is to issue charitable tax receipts the agreement as per the policy should outline: a) When the foundation should receive full accounting of the revenue and expenses of the event (signed by an officer of the organization) i.e. within 30 days of the event. b) A complete list of all those who purchased tickets including the full name, mailing address, postal code and phone number and noting the number of tickets purchased. c) The Foundation will calculate the value of the charitable tax receipt based on the information provided by the organizer and in accordance with the CRA policy on split receipting. The Foundation can only give receipts up to the total net proceeds it receives from any event. Other Considerations 5. The organizers/sponsors of the fundraising event must obtain their own liability insurance to cover the event. A certificate of insurance will be required naming the foundation as a coinsured for the duration of the event. The foundation should not be named on any applications for lottery or liquor licenses by a third party, unless it is a sanctioned foundation event. If the event organizer wishes additional assistance from the foundation, the request should be made in writing and submitted to the Executive Director/CEO for review and consideration. All media requests regarding the foundation and its involvement must be communicated to The Foundation s Executive Director/CEO.
Tax Receipting In accordance with CRA guidelines (see Gifts and Official Donation Receipts IT-110R3, Income Tax Act for further clarification), the foundation will consider the following as examples of contributions that do not qualify as gifts and for which a charitable tax receipt will not be issued: contribution of services i.e. time, skills and effort; contribution of food or inventory from a business; the payment of a basic fee for admission to an event or program; the payment of a membership that entitles the member to receive services or entitlements as a result of that membership; payment for a lottery ticket or other chance to win a prize; the purchase of goods or services from the Foundation, even if more than fair market value is paid; if the donor has directed the Foundation to give the funds to family or anyone not dealing with the donor at arm s length is to receive the benefit; if the donor has directed the Foundation to give the funds to a non-qualified donee; and, the issuance of a gift certificate for goods or services that will not be redeemed by the Foundation (see CRA policy statement CPS-018). Split Receipting: Split receipting is the method used for calculating the eligible amount of a gift for receipting purposes when the donor has received an advantage (consideration) in return for his or her donation. To determine the eligible amount for receipting purposes, the value of the advantage must be subtracted from the value of the gift. Criteria for split receipting: Where a donor receives an advantage (a meal, giveaways, entertainment etc) in exchange for a gift, the registered charity must be able to accurately determine the fair market value of that advantage. The gift, minus the advantage, must still constitute a voluntary transfer of property and meet the intention to make a gift threshold. Donor recieves a tax receipt in the amount that the value of the gifts exceeds the benefit received.
Example Golf Tournament: (calculation is done on a per person cost) Participation fee: $300 Advantage: Cart Rental $20 Meal (ex. GST and PST) $90 Complimentary items $ 0 Total Retail Value of Prizes $55 Total CRA Advantage $165 Less CRA Advantage ($300 - $165) $135 Is the Advantage > 80% of the fee? ($240) No Do complimentary items exceed $75 or 10% No Therefore the charitable tax receipt is for $135. Third party events are a great opportunity to support and grow your foundation. They can also be incredibly time consuming and overwhelming if not handled properly or potentially put the foundation at risk. Creating a Third Party Event Policy including the abovementioned factors will be an important step in having a successful relationship with foundation supporters.