Activities; Working with a charity's own staff; Working with an intermediary - Segment 2


Now what does own activities mean?

I've mentioned the phrase own activities and I'd like to explain a bit more about what I mean by this.

In short, once a charity has ownership or control over resource such as money, a building, food people have donated, the Income Tax Act requires the charity to make sure those resources are only used for its own charitable activities.

Apart from making a gift to a qualified donee which we talked about before. The CRA tends to call this the own activities test or requirement.

The charity, of course, cannot simply give its resources away to a non-qualified donee for use in that non-qualified donee's programs. The charity must use its resources to carry out the work for which it was registered as a charity with the Canada Revenue Agency.

So since we're talking about a charity's activities, I just want to note that most activities that are charitable in Canada are also charitable abroad.

Certainly most charitable activities, what we might think of as the classical, charitable activities such as feeding the impoverished, healing the sick, are charitable wherever in the world they are carried out. Inside of Canada or outside of Canada.

There are only a few purposes for which Canadian charities are only charitable within Canada. For example, a Canadian charity can only support the Canadian Armed Forces or seek to pay down Canada's national debt.

And I'll also mention here, the Income Tax Act does not, itself, define what is charitable. Rather, the CRA relies on court decisions from Canadian courts but also from the body of common law that includes the English courts to guide us when examining a charity's purposes to see if they're charitable. Not only must a purpose be charitable as decided by the courts, but there must be a benefit to the public -- some good that is accomplished by the furthering of the charitable purpose. We usually call that the public benefit test. And, in short, charities cannot be formed to benefit a private individual or a group of private individuals.

How can a charity carry on its own activities?

When a charity is carrying on its own activities, the CRA typically sees these activities being accomplished in three ways.

Through a charity staff, through intermediaries or much more unusually, the exceptional case of transferring certain resources directly to a non-qualified donee.

We'll come back to that number three in more detail later.

There may certainly be other ways to carry out a charity's own activities but these are three that the CRA most commonly sees.

We're just going to look at that first one. Who are considered a charity staff?

Generally, when we talk about staff for the purposes of the guidance and this webinar, we really mean just about anyone who is under a charity's direct control and supervision. The people who represent the charity, wherever it is carrying out its programs and activities, for doing the actual work and so on.

This is clearly a very wide category, including paid staff members, volunteers, board members, whomever.

From the perspective of the Income Tax Act, carrying out a charity's activities through its staff is usually the easiest way to meet the own activities requirement. As the charity is using its own internal people to make sure its resources are used appropriately.

Having said that, of course, there are many challenges involved with sending people abroad to carry out activities, getting the staff to the right location, maintaining communications, supporting them adequately and so on.

And what is an intermediary?

Sometimes charities, for whatever reason, may need to rely wholly or in part on a local person or organization to carry out the charity's activities on the charity's behalf. For example, a charity might just not have staff members who can travel to the country where the charity wants to operate in.

We generally call the organizations or non-qualified donees who carry out a charity's work on its behalf, intermediaries. In a sense they are a kind of middle man, a person or organization who do not benefit from the charity's resources themselves, but rather help get the resources to the people who need the resources of the charity, the proper beneficiaries of a charity's programs.

For example, a charity might enter into an agreement with a foreign charity, a foreign non-qualified donee, of course, to work together to build housing for the homeless. Obviously, the housing isn't for the non-qualified donee, the foreign charity, it is for the people who need the homes and the foreign charity helps the charity get the -- its resources to the right people.

Well, why work with an intermediary?

Normally a charity works with a particular intermediary because that person or organization has some skill or resource that the charity needs in order to carry out its activities.

A foreign non-profit organization might simply know where the people are who are in most need of a charity's help and how to get there. Or a foreign non-profit might have medical personnel who can provide the kind of care to the people that the charity is trying to help.

Talking about intermediaries, the CRA wants charities to be careful when they're thinking about entering into an agreement to work with an intermediary.

Generally, we would expect that the charity has first of all done some homework to make sure the intermediary actually can do the work that needs to be carried out. For example, we would like to see that the charity has confirmed that the intermediary has the personnel, the experience, the equipment, whatever is needed.

Also we would like to make sure that the intermediary is very clear about what work needs to be done on behalf of the charity, how the charity's resources are to be used and presumably this would come from the discussion with the charity itself.

What should a charity do when working with an intermediary?

When a charity works with, or excuse me, works through an intermediary, it often has to transfer some of its resources to that intermediary so the intermediary has what it needs to complete the required work on the charity's behalf and I want to be careful here because when I say transfer, I don't mean a gift, of course, where the recipient can do whatever it wants with the gift as is all right with a qualified donee. I mean, the intermediary is given the resources but the charity is still the one that, as the CRA puts it, directs and controls the use of those resources.

The charity is directing and controlling those resources to make sure that they are only used for the charity's own activities which we discussed earlier.

The CRA has certainly seen cases where a very well-meaning charity might simply hand over cash or other resources as a gift to a non-qualified donee and the non-qualified donee might well be carrying out very excellent and admirable work in its country.

However, since those resources are going to be used for the non-qualified donee's activities and not the Canadian charity's own activities, those resources will not have been used properly, at least from the perspective of the Income Tax Act and the charity would be in violation of the act and could face sanctions.

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