Some have tried to rate charities based on overhead or administration costs. In this article “How Much Should A Canadian Charity Spend on Overhead” we note many reasons why you cannot just rate charities based on either overhead costs or fundraising ratios.

For more information on fundraising ratios see the CRA’s Guidance on Fundraising at:×99n2j

Here is a tiny piece of the CRA Fundraising Guidance but it illustrates the difficulty of relying solely on ratios for example the ratio of funds spent on fundraising:

9. Evaluation of fundraising activities

For the purposes of this assessment fundraising revenues and expenditures are:

  • Fundraising revenues include amounts reported on Lines 4500 and 4630 of the charity’s annual Form T3010. All amounts for which a charitable tax receipt is issued must be reported on line 4500. All other revenue generated as a direct result of fundraising expenses must be reported on line 4630.
  • Fundraising expenditures include amounts reported on Line 5020 of the charity’s annual Form T3010. All expenses determined to be fundraising expenses in accordance with this guidance should be reported on line 5020.

Fundraising Ratios and the CRA’s Approach
The CRA recognizes that the charitable sector is very diverse and that fundraising effectiveness will vary between organizations. There can be good reasons for a charity to incur higher fundraising costs for a particular event or in a particular year. As a result, a range of factors will be considered in the course of a CRA review. One of the factors that the CRA will consider is the ratio of fundraising costs to fundraising revenue.

The following table provides some general guidance in terms of where the CRA may seek additional information or justification for fundraising costs.

Fundraising ratios alone are not determinative in assessing whether a charity’s fundraising complies with the requirements of the guidelines in this guidance. However, these ratio ranges give charities a way to generally gauge their performance and understand the circumstances where the CRA is likely to raise questions or concerns.

Ratio of costs to revenue over fiscal period CRA Approach

Under 35% Unlikely to generate questions or concerns.

35% and above The CRA will examine the average ratio over recent years to determine if there is a trend of high fundraising costs. The higher the ratio, the more likely it is that there will be concerns and a need for a more detailed assessment of expenditures.

Above 70% This level will raise concerns with the CRA. The charity must be able to provide an explanation and rationale for this level of expenditure to show that it is in compliance; otherwise, it will not be acceptable.

In addition to considering where a charity falls within the ratio ranges, the CRA will look to the factors described in paragraphs 10 and 11 below, when it considers a charity’s fundraising activities. In addition, the CRA’s assessment of a charity’s fundraising will take into consideration the following factors:

a. The size of the charity (which might have an impact on fundraising efficiency).
b. Causes with limited appeal (which could create particular fundraising challenges).
c. Donor acquisition and planned giving campaigns (which could result in situations where the financial returns are only realized in later years).

10. Best practices

The following is a list of best practices considered to decrease the risk of unacceptable fundraising.

Note: These are indicators only. Their applicability and utility will depend on a number of factors, including the size of the particular fundraising event.

a. Prudent planning processes.
b. Appropriate procurement processes.
c. Good staffing processes.
d. Ongoing management and supervision of fundraising practice.
e. Adequate evaluation processes.
f. Use made of volunteer time and volunteered services or resources.
g. Disclosure of fundraising costs, revenues, and practice (including cause-related or social marketing arrangements).

11. Areas of concern that could lead to further review

The following is a list of indicators that could cause the CRA to further review a registered charity’s fundraising activities.

a. Sole-source fundraising contracts without proof of fair market value.
b. Non-arm’s length fundraising contracts without proof of fair market value.
c. Fundraising initiatives or arrangements that are not well-documented.
d. Fundraising merchandise purchases that are not at arm’s length, not at fair market value, or not purchased to increase fundraising revenue.
e. Activities where most of the gross revenues go to contracted non-charitable parties.
f. Commission-based fundraiser remuneration or payment of fundraisers based on amount or number of donations.
g. Total resources devoted to fundraising exceeding total resources devoted to program activities.
h. Misrepresentations in fundraising solicitations or in disclosures about fundraising or financial performance.