Introduction; Charity's resources; Qualified donees - Segment 1
Welcome to the CRA's Activities Outside Canada Webcast. This webcast is a recording of a webinar that occurred in February 2011. The session is no longer live, so if you have questions please call our client service at 1-800-267-2384 and one of our agents will be happy to help you. Thank you very much and we hope you enjoy this webcast.
The Charities Directorate, of course, is the relatively small part of the federal government that's responsible for the registration and the regulation of charities in Canada and the Charities Directorate is part of the much larger Canada Revenue Agency, which is the federal body responsible for applying and enforcing the Income Tax Act.
The Income Tax Act is the piece of federal legislation that allows for the registration of charities and also gives charities the ability to issue tax deductible receipts. In this webinar, I tend to use the terms CRA and Charities Directorate interchangeably but I just want to mention the Charities Directorate is really just a small portion of the Canada Revenue Agency that is responsible for charities at the federal level in Canada.
And, just a little bit of background to this webinar, the CRA released guidance on charities operating outside of Canada, published on our website back on July 8 of 2010.
The guidance was intended to give charities our best advice on how to carry out charitable activities outside of Canada and still meet the requirements of the Income Tax Act under which they are registered of course. The guidance updates and replaces the old RC4106 which was released in 1999.
I should be clear, the CRA has not changed its fundamental positions on activities outside of Canada or on issues related to charities operating outside of Canada. Rather, our goal with the release of the recent guidance was to consolidate and also to clarify the information in the guidelines that were in the RC4106 and also to incorporate some court decisions regarding charities outside of Canada that were made after the release of the 4106.
So, basically, in short, to give a very, very short summary, charities may carry out activities outside of Canada, of course, but they must do so in a way that they continue to meet all the requirements of the Income Tax Act.
Now, I'm just going to take a step sideways here and just talk about before a charity even looks at carrying on activities outside of Canada.
The first thing is that we actually recommend, if anyone is thinking of applying to register a charity to carry out work outside of Canada, or even if it's a charity that's starting to think of a new program to carry outside of Canada, we actually recommend, consider supporting an existing qualified donee such as a registered -- another registered Canadian charity instead.
There are, of course, many challenges in working abroad, such as transportation and logistics, which can make it difficult to carry out programs and keep complying with the requirements of the Income Tax Act.
It's the CRA's experience that supporting an existing qualified donee with similar objectives can be a more efficient method to accomplish one's goals.
We also recommend that if a charity does go ahead and decide to carry out work outside of Canada, just to make sure its goals and objectives are a match for its resources and capacity.
For example, a small new charity might want to consider focus on providing anti-malaria mosquito nets for a certain number of communities in a foreign country rather than proposing to eradicate malaria throughout the entire country right from the start.
And then, of course, as the charities experience and funding grows it can expand its programs to match.
What can a charity do with its resources?
Now, if a charity does ultimately decide to work outside of Canada, the Income Tax Act places restrictions on how it can use its resources for these activities.
Now, of course, we could have another webinar that just examines the definitions of the different types of charities and all their obligations and requirements under the "Act". However, for now, what we're going to do is we're going to summarize the Income Tax Act requirements for the use of a charities resource as they are on this slide and as they are on the guidance as well.
Basically the Income Tax Act requires a charity to do two things with its resources. It can devote its resources to the charities own charitable activities or it can gift its resources to a qualified donee.
Devoting resources to a charity's own activities can be a more complex issue and the guidance in the webinar deal with this issue in depth.
Since gifting to a qualified donee is a relatively straight forward use of resources, at least in comparison to devoting resources to a charity's own activities, we'll look at that quickly first.
And I also want to mention as it says on the slide here, that the term resources really includes everything that the charity owns or controls and that includes money, buildings, medicine, relief supplies, even volunteer hours, volunteer time and effort and so on.
And, I'm just going to talk briefly about what is a qualified donee?
A qualified donee is the term for an organization that can issue a tax receipt that a Canadian citizen can use to reduce their income tax payable. These organizations, qualified donees, are listed in the Income Tax Act. Canadian Registered Charities are the best known type of qualified donee.
The phrases are practically synonymous, at least for our purposes; but there are a number of other organizations that also have this qualified donee status that includes all levels of government in Canada, federal, provincial, territorial or municipal.
There are several universities outside of Canada that are qualified donees. The United Nations and its agencies are qualified donees and so on. Now, the phrase non-qualified donee also comes out several times during this webinar. Basically it's an organization that is not itself a qualified donee and this is important because the vast majority of foreign charities and foreign nonprofit organizations are non-qualified donees.
There are only about 12 or 14 or so foreign charities that are qualified donees. Those are listed in the IC84, organizations outside Canada to which her Majesty in right of Canada has made a gift. That's available on our website. You can do a simple search for that document and it should come up right away.
This means that since these foreign charities and foreign non-profits are not qualified donees, they're non-qualified donees, charities cannot simply make a gift to any foreign charity it might happen to want to support. Making a gift to a non-qualified donee is a serious problem under the Income Tax Act and can actually lead to compliance measures. So a charity can only, of course, make gifts to qualified donees and not non-qualified donees.
So, what is a gift to a qualified donee?
I'll just go through this very quickly. A gift to a qualified donee is usually a very straight forward transaction, at least from the perspective of the Income Tax Act. It's a transfer of money or any other form of property to a qualified donee or any resource to a qualified donee.
I'll mention quickly that we ask that charities that are giving the gift to another qualified donee not ask for an official donation receipt as charities can't claim income tax refunds since they don't pay income tax and the charity that is giving the money doesn't need to know what happens to the gift after it's been given to the qualified donee.
The Income Tax Act places very few restrictions on gifts to qualified donees. There are, of course, many charities whose entire purpose it is to fund other qualified donees, foundations are a common example. A simple example would be a hospital foundation giving the proceeds of a fundraising campaign over to the hospital that it supports as a gift to a qualified donee.
So the webinar and this guidance really, the heart of why we have this guidance is focusing more on situations where a charity is not making a gift to a qualified donee or cannot make a gift to a qualified donee but instead carrying on its own activities outside of Canada and what the Income Tax Act's requirements are in this case.
In particular, a charity, although it can't make a gift to a non-qualified donee, might want to work in partnership with a non-qualified donee in order to carry out its activities. We usually call this working with an intermediary.
When working in partnership with an intermediary, the charity might also need to send some of its resources to an intermediary so that intermediary can do the charity's work on its behalf in the foreign country.
In these cases, how does the charity make sure it isn't accidentally making a gift to a non-qualified donee, but is still carrying out its own activities while it is working in partnership with this intermediary? And the short answer is, and we'll get into this much more later within the presentation, when working through an intermediary, a charity must make sure that it directs and controls the use of its resources.
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