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Revenue Generation for Charities

RevenueCharities are constantly looking for new ways to generate revenue to fund their existing and future charitable programs. The housing and real estate markets provide charities with opportunities to generate revenue, whether through existing land holdings or as part of projects to build and operate charitable housing.

Registered charities are only allowed to carry out certain revenue-generating activities that are not part of their charitable activities. Charitable organizations and public foundations can conduct “related businesses”. However, private foundations are prohibited from carrying out any business activities. The Canada Revenue Agency’s policy statement, “What is a related business?”, describes the rules charities need to follow when considering a revenue-generating activity.

First, the charity needs to determine whether the activity is a business activity. An activity is a business activity when one or more of the following criteria are met:

  • there is the intention to make a profit;
  • the activity has the potential to show a profit;
  • the activity generated profits in previous years; or
  • the people who are carrying out the activity were selected because of their commercial expertise and experience.

If it is a business activity, then a charitable organization or a public foundation can only carry it out if the activity is a related business. A related business is a business that is either: (i) run substantially (at least 90%) by volunteers; or (ii) “linked and subordinate” to one or more of the charity’s charitable purposes.

There are four recognized ways in which a business may be linked to a charitable purpose:

  • the activity is a usual and necessary concomitant of charitable programs;
  • the activity is an off-shoot of a charitable program;
  • the activity is a use of excess capacity; or
  • the sale of items that promote the charity or its objects.

There are four factors that need to be considered when determining whether a business activity is subordinate to one or more of the charitable purposes:

  • relative to the charity’s operations as a whole, the business activity receives a minor portion of the charity’s attention and resources;
  • the business is integrated in the charity’s operations and is not a self-contained unit;
  • the charitable goals continue to dominate decision-making; and
  • the charity operates exclusively for charitable purposes by, among other things, permitting no private benefit.

An example of an activity that may be an unrelated business is a charity that rents out five stories in a 10-storey building as at-market rate residential housing.

If a charity has an unrelated business, it could lose its registration as a charity. In order to protect the charity, the business activity needs to be conducted by a separate entity, such as a subsidiary for-profit corporation or a business trust.

Housing projects that are intended to generate revenue for a charity are often mixed-use developments. A parcel of land that had a church may be developed into a building with a church, charitable housing units, affordable housing units, at-market rate housing units, and commercial retail space. Often more than two entities will be involved in a development (e.g. the original charity, a separate charity for the charitable housing, a non-profit for the affordable housing, and for-profit corporations for the at-market rate housing and the commercial retail space). The relationship between the entities will need to be carefully structured. The charity will also have to be careful to comply with the rules that prohibit charities from providing non-charitable organizations with resources or services without receiving fair market value in return. Compliance means not only keeping the activities of the non-charitable entities separate and distinct from those of the charity, but also ensuring that when the charity transfers an interest in land or an air parcel it is paid for that transfer.

By Sarah Fitzpatrick, Miller Thomson

Occasional Contributors

In addition to our regular guest bloggers, Inside Internal Controls blog published by First Reference, provides occasional guest post opportunities from various subject matter experts on the topics of risk management and best practices in finance and accounting, information technology, environmental issues, corporate governance, sales/marketing and operations, not-for-profits and business related issues in Canada. If you are a subject matter expert and would like to become an occasional blogger, please contact Yosie Saint-Cyr at If you liked this post and would like to subscribe to Inside Internal Controls blog click here.
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