Four types of intermediaries: agents, joint venture, cooperative, contractor - Segment 4


And here we have the four most common types of intermediaries.

And I'm going to take a few moments and go over these types of intermediaries that the CRA tends to see, agents, joint venture participant, cooperative participants and contractors.

With this in mind, intermediaries can really take any form. The CRA has no requirements over what an intermediary should be or what kind of arrangement should be in place with an intermediary as long as the Income Tax Act's own activities requirement is met. These are just the types of intermediaries that the CRA tends to see most frequently.

What is an agent?

An agent is probably the type of intermediary that comes up most often when we discuss activities outside of Canada. And an agent is an intermediary that agrees to carry out specific activities on a charity's behalf using the charity's resources to accomplish those activities.

For example, a charity that was registered to relieve poverty might find a local non-profit organization in a foreign country with similar goals and that agrees to help the Canadian charity build, for example, an orphanage in a local area.

The non-profit organization acts as the charities agent accepting transfers of the charity's money and other resources, arranging construction and staffing of the orphanage according to the terms of a written agreement and then reporting back on the progress so the charity knows what's happening to its resources and has direction and control over how those resources are used.

Now, one thing I should mention when we talk about agents is that registered charities should consider how they structure an agency agreement since the existence of an agency relationship may actually expose them to liability for the acts of their agents and even if there is no formal agency agreement in place, a court could still attach liability to a charity if the court decides from the circumstances that an implied agency agreement exists.

Unfortunately, we, the CRA, the Charity's Directorate can't really advise charities on how to handle potential liability issues with agent as it's not really our area of expertise. But we really want to make charities aware that these issues can exist so they can take whatever steps may be required to manage that risk.

What is a joint venture participant?

A joint venture participant is an intermediary that a charity pools its resources with in order to attain a common goal, one that, of course, carries out or furthers the charity's own activities.

Joint venture participants are a bit different from agents since agents usually do all the work on a charity's behalf. But a charity usually works hand in hand with a joint venture participant instead. For example, a charity might cooperate with a foreign, non-profit organization to build a school, for example, for the disabled. The two will pool their money and other resources to construct the building, hire the staff, locate the beneficiaries that will attend the school and so on.

Now, a charity that's entering a joint venture agreement should be careful that is has enough control over the joint venture so that it can meet the own activities requirement.

For example, if a charity were providing 50% of the resources to a project but only, if for some reason, happen to have 20% of the authority over the project, it's possible that since the other body has 80% of the authority, it could -- the other body, the non-qualified donee could decide to use the charity's resources for purposes that are not the charity's own and this could, actually in turn, lead to the charity not meeting its own activities requirement.

So, of course, when the CRA looks at a joint venture, it's going to look at the venture as a whole and that the charity's participation in the venture to make sure that the charity's resources are only being used to further its own activities.

What is a cooperative participant?

A cooperative participant is an intermediary that the charity works with but side by side instead of hand in hand as with the joint venture participant.

That is to say the charity and the intermediary work together on the same project but do not actually pool their resources. Instead, each organization just pays for certain aspects of the project. For example, you could have a charity and a non-profit organization from another country that agree to build a medical center in a remote region of a country.

The charity might be responsible, just, for example, for locating, hiring, paying staff for the medical center.

While the non-profit organization is responsible for constructing the actual building and purchasing any of the necessary medical equipment. The two do not pool their funds, nor does either have control over the other's assets so that it's possible in these situations it may be easier to demonstrate direction and control but that, of course, will always depend on the actual circumstances, the particular facts of the case.

What is a contractor?

A contractor is possibly, hopefully the most straight-forward of the examples of intermediaries.

It's a person or organization hired by a charity to provide goods and or services.

A charity might hire a private construction firm to building housing for those made homeless by a natural disaster, for example. The charity normally exercises direction and control over the use of its resources through its contract with the contractor, making sure its resources are used appropriately.

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