The Toronto Star has published recent articles about good, bad and ugly charities. These articles raise important questions about how charities are regulated in Canada, and may leave you wondering which charity to support. Perhaps even, should I donate at all?
Charities play a critical role in providing countless services to communities across Canada, supported by generous donors whose funds are used in an effective, efficient and ethical manner.
Nonprofits and fundraisers who seek to purposefully mislead the public about fundraising costs or use of their contributions should always be prosecuted to the fullest extent of the law.
Charities have overhead costs, just like for-profit organizations. Fundraising and other administrative costs may reveal something about an organization’s
management. Donors should look at a charity’s cost of fundraising, its overall budget, and whether or not it is running a deficit. Ideally, donors should look for signs of consistent management and stable costs over several years.
However, costs alone reveal nothing about an organization’s effectiveness and overall work. Different types of charities and programs have substantially varying costs (compare a charity that works to find a cure for a disease versus one that provides meals to the needy). Comparing organizations by costs and expenses won’t show anyone the relative impact they have on society. Is an organization with 17 percent costs really that much better than one with 27 percent costs?
Like any investment decision, giving should be well-informed. Here are five things donors should consider.
1. Check if your cause is a registered charity: For you to receive a tax credit for your donation, a charity must be registered with the Canada Revenue Agency (CRA) and have been issued a charitable number. Each year the charity makes a filing with the agency, which is publicly posted on the CRA website. Provincial Attorneys General also have authorities to regulate the activities of charities in the marketplace.
2. Ask how your funds are spent: Take your time in making giving decisions and resist high-pressure appeals. The faster the sales pitch, the more you should just say no. Like many businesses, charities do issue annual reports or have websites. These describe what they do and give information about their financial affairs. And remember: if you designate how your donation must be spent by the charity, you are adding to their administrative costs by obliging them to track those dollars.
3. Query fundraising practices: While there are unscrupulous individuals, fundraising is a respectable profession. Ask if their fundraisers are volunteers, are paid a fixed-fee or a salary instead of a percentage. Also ask if the charity and its fundraising staff adhere to an established fundraising code of ethics developed by the Association of Fundraising Professionals and Imagine Canada.
4. Consider best way for you to give: For those making larger donations, giving gifts of equities is becoming a popular option. Recent changes in the federal Income Tax Act mean you can now donate stocks, bonds or mutual funds to charities and pay no capital gains tax on the increase in value since your acquired it. The donor also receives a charitable tax receipt for the full market value of the gift at the time of donation.
5. Volunteer: Offer to volunteer your time to promote the goals and objectives of the charity and to learn more about the organization and how it is run.