Property transfers - Segment 5
We've been talking about direction and control and here we're going to get to the exception that I mentioned earlier.
Now, as I've mentioned, a charity must direct and control the resources to ensure they are not misused and by misused, I mean from perspective of the Income Tax Act used for activities that are not the charity's own charitable activities. The Canadian charities own charitable activities.
However, there are some exceptional cases where the risk of misuse is so low that the CRA is prepared to accept direct transfers of certain types of resources, never cash, never money, to a non-qualified donee without any accompanying direction and control. For this sort of transfer to be acceptable to the CRA, all three of the conditions listed on this slide must be true.
The property transferred can reasonably only be used for charitable purposes and there is an agreement of some type in place specifying the property be used for the Canadian charity's charitable activities and it is reasonable for the charity to expect the property will, in fact, be used for the charitable activities.
If all three of these conditions are met, we consider the charity to be carrying out its own activities when it transfers the resources directly to a non-qualified donee without direction and control.
The kind of situation that the CRA is thinking of is, for example, a transfer of antibiotics, something that can very likely only be used to heal the sick, to foreign hospital with a long, excellent record of serving its community under at least some kind of agreement such as an exchange of emails between the directors of the charity – charities -- that shows the non-qualified donee has agreed to use the antibiotics as the charity directs, which is to say for the Canadian charities own charitable activities.
Well, when is it reasonable to expect property will be used for charitable activities?
We'll just go into a little more detail here.
One of the most important things to establish in these situations is that it is, in fact, reasonable for the charity to expect its resources will be used appropriately.
The main way to accomplish this is for a charity to investigate and research the non-qualified donee.
Its current status and activities, its past history and definitely if there have been previous transfers by the charity to the non-qualified donee, what were the results of those transfers?
Were the resources used appropriately?
In this way the charity can hopefully develop an understanding of the non-qualified donee's operations and what it is likely to do with any resources the charity might transfer.
How should a charity investigate a non-qualified donee?
To provide some examples of what the CRA recommends a charity look at when investigating a non-qualified donee. We'd include the goals and purposes of the non-qualified donee, its relationship with other charities, especially other Canadian charities, if any, the history within its own community—the non-qualified donee's own community -- any relevant media reports that might exist about the non-qualified donee and so on.
For example, you might have a charity whose purpose is to relieve poverty—a Canadian charities' purpose is to relieve poverty and it might find, for example, a religious leader in a community who has been helping the poor in that community for a long time. You could say 10, 15, 20 years, something along those lines. And this leader has good relationships with other international charities.
So, in this case, transferring clothes, for example, to the religious leader to pass on to those in need might well be acceptable as the charity's own activities. It might meet all of those three criteria that we discussed earlier.
In contrast, what the CRA would be very, very concerned about is if a charity simply sent some its resources off to, for example, a friend of a friend who claimed these resources would be used appropriately without the charity ever really knowing who this person is, what they do or what ultimately happened to the resources and so on.
And here we'd be looking at examples of transfers that might be acceptable?
Might be depending on the circumstances, transfers of books to a foreign library, transfer of medical equipment to a foreign hospital, transfers of stuffed animals or toys to a foreign orphanage.
Now if any of the three conditions that we discussed earlier do not apply, a charity will only be able to meet their own activities test by directing and controlling the use of resources as we've talked about up until now.
And I would suggest that any charity tend to err on the side of caution. And if there are doubts about whether any of the three conditions apply, then put measures of direction and control in place, absolutely.
What if a charity wants to transfer capital property?
Since we've been talking about, speaking, transferring resources, I do to want address the issue of transferring real or capital property, land or buildings from a charity to a non-qualified donee. This doesn't actually come up terribly often but it can be an issue.
Sometimes a charity wants to help buy or build a piece of property in a foreign country but for some reason, it cannot actually own the property. For example, there are some foreign countries do not allow foreign ownership of property. So, the Canadian charity couldn't own a piece of property in the foreign country.
In this case, the charity, the Canadian charity, might want to transfer ownership of the property to a local non-profit organization that it's working with, possibly a government body, something along those lines.
Now this can really be a significant issue for the CRA, for the Charity's Directorate because lands and buildings tend to have a high value and can often be used for purposes that are not charitable.
For example, you might have a charity that's registered to relieve poverty. It builds just, as an example, a bridge across the river that helps residents in an impoverished community to bring their goods to a local market much more quickly.
But there could be a risk that a single member of that community might go on to seize control of the bridge and then start charging a toll for its use when it's supposed to benefit the entire community.
The CRA would generally expect a charity to, first of all, investigate the likelihood that any property would be seized by another party and used for non-charitable purposes or otherwise misused. If there's little or no apparent risk of misuse, the CRA might be willing to accept the transfer of real or capital property to a local nonprofit organization or a government body if there is no alternative.
Really, we would expect a charity to have investigated all the options beforehand and I want to add -- close on this on saying the CRA will look at this on a case by case basis. And really, if you have one of these situations, contact the Charity's Directorate directly.
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