Anti-avoidance rules and designated gifts

Anti-avoidance rule

A registered charity that receives a gift from another registered charity that is not at arm's length must spend 100% of the fair market value of the gift (determined at the time of the gift) on:

• its own charitable activities
• gifts to qualified donees that are at arm's length
• grants to non-qualified donees that meet the requirements of the Income Tax Act

A registered charity must meet this anti-avoidance spending requirement in the fiscal period the gift was received, or in the following fiscal period. If a charity does not spend the amount on time, it may be subject to a penalty of 110% of the amount that it failed to spend, or to revocation of its registered status.

If the donor charity chooses to designate the gift as outlined below, the recipient charity will not be subject to this additional spending requirement.

Designated gift

A designated gift is a type of gift made between registered charities that are not at arm's length.

To designate a gift, the donor charity must indicate the gift is a designated gift in its information return for the fiscal period in which the gift is made. Charities that need to report a designated gift can use Form T1236, Qualified Donees Worksheet / Amounts Provided to Other Organizations. On the blank line below the amount of non-cash gifts, write "designated gift" and the amount of the gift that is designated.

A donor charity cannot use the designated gift to satisfy its disbursement quota. Therefore, the amount of designated gifts included at line 5050 (gifts made to qualified donees) must be subtracted when a charity calculates if it has met its disbursement quota.

We recommend that the donor charity inform the recipient charity that a gift is a designated gift to allow the recipient charity to adequately track its own spending requirement for the fiscal period.

Related topics

• Meeting the disbursement quota (checklist)