Monday, October 06, 2008

Magazines urged to review new charitable fundraising rules

Changes to rules and procedures at the Canada Revenue Agency (CRA) should be carefully reviewed by magazines who have charitable status or are associated with a separate organization which does, according to a bulletin just released to its members by Magazines Canada.

As part of its crackdown on charities who spend too high a proportion of their fundraising revenue on expenses, CRA) is red-flagging returns that show more than 35% fundraising expenses. CRA has re-defined what is a fundraising expense. For instance, marketing or costs associated with a store (presumably physical or online) that sells items for charity will now be counted towards the 35% ceiling. While this is unlikely to affect those who are already charitable, it may affect magazines looking to get charitable status in future, the bulletin says. And, good advice at any time, it is recommended that a magazine that is puzzled about this should take legal advice.
For the magazine to get charitable status in the first place, CRA would have had to agree that it has a charitable and educational purpose and that it is not an unrelated side business for the larger charitable organization. Those rules have not changed and so it seems unlikely that any of the current magazines will suddenly be reclassified...

Additionally, if the magazine is being delivered for its own sake and not as a means of further solicitation of support, it will likely be considered a good that serves the beneficiaries and not as a fundraising vehicle. As such, costs associated with producing the magazine would not be considered fundraising costs.

However, if a charitable magazine is being used primarily as a gift for donations or as a vehicle for fundraising instead of having an "educational" goal, that magazine should be wary and a formal legal opinion should be sought.

In other words, an organization that says "Give us a donation and we'll give you a magazine subscription" could be courting trouble, while a magazine that says "Subscribe to our magazine and, by the way, we are supported in part by a separate charitable organization." will probably be OK.

The basic problem for magazines is that, under the antiquated rules of the CRA, for a magazine to get charitable status it must have an "educational" rather than a "commercial" or "information" goal and this designation is subject to interpretation that is sometimes murky and illogical. As has been said before in this blog, there needs to be a realistic review and renovation of charitable law in this country to reflect the reality that many small, not-for-profit magazines should be allowed to have charitable status according to a modern, common sense definition.

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