Relief of poverty and charitable registration

Guidance

Reference number
CG-029

Issued
November 27, 2020

This guidance replaces Summary policy CSP-P03, Poverty.

General requirements for charitable registration 

In addition to the requirements set out in this guidance, there are a number of other general requirements related to charitable registration. For more information, see Guidance CG-017, General requirements for charitable registration

Guidance products can be updated. If you have comments or suggestions to improve the guidance, we would like to hear from you. To provide comments or obtain additional information, contact the Charities Directorate.

Summary

The relief of poverty is a recognized charitable purpose category. To be a registered charity under the relief of poverty category, organizations must show both of the following:

  • their beneficiaries are experiencing poverty
  • their activities provide a charitable benefit that relieves the poverty of their beneficiaries

Poverty is a relative term and there is no complete definition of poverty in charity law. For the Charities Directorate’s purposes, people experiencing poverty are those who do not have the ability to acquire the basic necessities of life or simple amenities that are seen as necessary for a modest but adequate standard of living. In Canada this can include providing internet access, appliances, and passes for public transportation.

Depending on the value of the benefit being provided, the frequency of the benefit, and an organization’s operational circumstances, the organization may also need to establish criteria to evaluate its beneficiaries to make sure that they need poverty relief. To establish appropriate criteria, charities may use recognized poverty indicators or they may establish their own criteria.

Although charities can be established to relieve poverty, they cannot be established to prevent poverty. Preventing poverty implies that the beneficiaries are not experiencing poverty, a requirement for beneficiaries under the relief of poverty category. However, charities can have activities that have the effect of preventing poverty. Such activities typically advance purposes in one or more of the other charitable categories where the beneficiaries are not restricted to those that are poor (the advancement of education, the advancement of religion, or other purposes beneficial to the community).

A.    Introduction

1.    The Canada Revenue Agency (CRA) registers charities under the Income Tax Act (Act). The CRA also makes sure that charities comply with various legal and administrative requirements.

2.    Definitions:

Charity and registered charity: These terms include the three types of registered charities as defined under the Act:

Organization: This term includes registered charities and applicants that want to be registered charities.

Eligible beneficiaries and recipients: These terms refer to the members of the public who may receive charitable benefits from an organization’s activities.

Poverty: There is no complete definition of poverty in case law or in the Act. So the CRA interprets poverty and what it means to be experiencing poverty based on court cases.

3.    This guidance explains the Agency’s administrative policy on charity law, including the criteria an organization with purposes to relieve poverty must meet to be eligible for registration. For more information, go to Make an informed decision about becoming a registered charity.

4.    There are other requirements not found in this guidance that must be met for an organization to be registered under the Act. For detailed information about registration requirements, see Guidance CG-017, General requirements for charitable registration.

5.    This guidance provides general information only. All decisions about specific organizations are made individually, applying the Act and the common law to the facts in each case.

What is poverty?

There is no complete definition of what constitutes poverty in charity law. Based on the court cases on the subject, the CRA’s interpretation is that people experiencing poverty do not have the ability to acquire the basic necessities of life or simple amenities, which would be regarded as necessary for a modest but adequate standard of living.Footnote 1   

The courts have also agreed that poverty is a relative termFootnote 2  and that it depends on a person’s environment and individual circumstances. For example, there are wide discrepancies in income, education, and health, as well as social and economic opportunities, between and within countries. Therefore, the way that poverty is experienced in a developed country is different from that in a developing country. Differences may also exist in a geographically dispersed country such as Canada. These differences can be considered when determining who is experiencing poverty, since there is no uniform criteria.

B.    How can charities relieve poverty?

6.    For an organization to show that it is relieving poverty, the organization will need to establish that its activities provide beneficiaries with a charitable benefit (for example, what the charity is doing to relieve poverty) and that its beneficiaries are experiencing poverty (for example, who the charity is helping).

a)    What is the charity doing to relieve poverty?

7.    Charities can relieve poverty by helping beneficiaries acquire the basic necessities of life.Footnote 3 Examples include providing beneficiaries with:

  • shelterFootnote 4 
  • clothing
  • food
  • personal hygiene items
  • eyeglasses
  • health care
  • access to water and sanitation

8.    Charities can also help beneficiaries by providing them with simple amenities, necessary for a modest but adequate standard of living, and by having activities that promote social inclusion.Footnote 5  Examples include providing beneficiaries with:

  • learning materials and school supplies
  • computers and required software
  • internet access
  • furniture and appliances
  • passes for public transportation
  • necessary home repairsFootnote 6 
  • financial assistance in the form of microloans and individual development accounts
  • budgeting assistance and financial planning services
  • help preparing for employmentFootnote 7 
  • funeral services
  • child care services
  • care services for other dependents (such as elderly, critically ill, or otherwise disadvantaged household members)
  • clothing for employment
  • children’s recreational activities and camps
  • cell phones
  • help completing government forms (for example, to get social assistance and other benefits)
  • legal services

9.    Activities that provide simple amenities, necessary for a modest but adequate standard of living, and activities that enable participation in society can take many different forms, can vary greatly between and within countries, and even over time. The onus will be on the charity to show that its activity is relieving poverty in the charitable sense.

Example

In the past, when providing help in preparing for employment under the relief of poverty, providing access to the internet or to a computer may not have been considered acceptable. This is because jobs were posted on bulletin boards and job applications were completed by hand and mailed. However, since jobs today are posted on the internet and applications are almost only completed online, providing computer and internet access to help beneficiaries prepare for employment would be acceptable.

10.    Benefits provided to beneficiaries are only charitable to the extent that they are shown to relieve poverty.Footnote 8  An organization that provides beneficiaries with a benefit that is more than what is needed to relieve their poverty may be delivering an unacceptable private benefit. For more information, see section 3.2.4 of Policy statement CPS-024, Guidelines for registering a charity: Meeting the public benefit test.

Examples

Examples of activities that are not acceptable because they provide beneficiaries with a benefit that is more than what is needed to relieve their poverty include the following:

  • A charity helps an eligible beneficiary participate in society by paying their membership cost to a private country club. Although this activity may be promoting the social inclusion of the beneficiary experiencing poverty, the charity is providing a benefit with a value that is more than what is needed to relieve poverty.
  • A charity helps an eligible beneficiary to acquire and install new granite countertops. Although this activity may be helping the beneficiary replace previous countertops that were mouldy and were contributing to an unhealthy living environment, the nature of the upgrade is more than what is necessary to meet the beneficiary’s need of a safe and liveable home.
  • A charity helps an eligible beneficiary by buying them a vehicle for personal transportation. In a city where there is reliable and widely used public transportation, the charity is likely providing the eligible beneficiary with more than their identified need for transportation to and from work.

11.    The CRA recognizes that many charities that relieve poverty undertake a variety of public policy dialogue and development activities in furtherance of their stated charitable purposes. Such activities are charitable as long as charities do not directly or indirectly, support or oppose, a political party or candidate for public office. For more information, see Guidance CG-027, Public policy dialogue and development activities.

Can charities prevent poverty?

12.    The courts have confirmed that purposes for the prevention of poverty are not charitable.Footnote 9  This is because purposes that prevent poverty are considered broad and benefit individuals who are not experiencing poverty. The courts have stated that beneficiaries under the relief of poverty category must be poor.Footnote 10

13.    Although the prevention of poverty is not charitable as a purpose, charities can conduct activities that have the effect of preventing poverty. These activities will further one or more recognized charitable purposes under any of the other three charitable categories (for example, the advancement of education, the advancement of religion, and other recognized purposes beneficial to the community). The beneficiaries under these three categories do not need to be restricted to individuals who are experiencing poverty.

Examples

Higher education is essential for avoiding poverty and improving one’s well-being, and a lack of education limits a person’s chances in life (including their earning opportunities and economic security).

A charity whose purposes further the advancement of education, provides scholarships to students, thereby reducing their need to accumulate debt to pay for their education. This activity has the effect of preventing poverty.

Poor health can contribute to poverty.Footnote 11  Good health is crucial for achieving other dimensions of well-being, such as attending post-secondary education and having a job that provides an adequate income.

A charity whose purposes further the promotion of health, provides free mobility devices, home modifications, and vehicle modifications to individuals with physical disabilities. This improves their physical mobility to enable them to fully participate in society without financial detriment. This activity has the effect of preventing poverty.Footnote 12

b)    Who is the charity helping?

14.    The members of the public who may receive charitable benefits from an organization’s activities are referred to as beneficiaries. An organization relieving poverty must consider:

Defining eligible beneficiaries

15.    A charity under the relief of poverty category must be established to provide assistance only to beneficiaries who are experiencing poverty.Footnote 13  Generally, an organization will define its eligible beneficiaries in its charitable purpose(s). When drafting a charitable purpose, an organization should use a term that clearly describes its beneficiaries as those in need of poverty relief. Among the terms that may be used are the following: people who are experiencing poverty, are needy,Footnote 14  are refugees,Footnote 15  are poor, are of limited means.Footnote 16

Examples of purposes

To relieve poverty by providing shelter and other necessities to orphans in India.

Here, the term orphan intuitively shows that the beneficiaries are in need of poverty relief and would be acceptable.

To relieve poverty by providing shelter and other basic necessities to immigrants.

Here, the term immigrant does not indicate a person in need of poverty relief. To be acceptable, the term immigrant should be further restricted to poor immigrants or immigrants experiencing poverty.

16.    Charities can also have relief of poverty activities for recipients in groups that have more specific needs. The CRA has guidance as it relates to two such groups: the youth and the aged. For more information, see Guidance CG-020, Charitable purposes and activities that benefit youth, and Guidance CG-026, Relieving conditions attributable to being aged and charitable registration.

17.    Further, the eligible beneficiaries of a charity’s purpose must represent the public or a sufficient section of the public and must not be unreasonably restricted. Any restrictions on beneficiaries must be relevant to achieving the charitable purpose and not contrary to public policy.

18.    For purposes that relieve poverty, the courts have recognized the “poor relations” exception, which allows eligible beneficiaries to be restricted to people experiencing poverty that are connected by family, employment (current or former), or association membership.Footnote 17

19.    This exception only applies if the eligible beneficiary group is a class of people. This means that a beneficiary group may not be restricted to named or particular individuals experiencing poverty. If “the restricted nature of the class leads to the conclusion that the gift is really a gift to the individual members of the class,”Footnote 18  it will not be found to be charitable.Footnote 19

20.    Indicators that the eligible beneficiaries are a class, and not particular individuals, may include the fact that all members are not immediately known, and the benefit is ongoing and not limited to people who are alive and known when it takes effect.

Examples

An organization relieves poverty by reimbursing the medical expenses for a rare disease, and only employees of a particular small business are eligible to receive benefits. Currently, the business has only one employee and that same employee is the one diagnosed with the disease.

By its nature, it is clearly known who the beneficiary will be. As such, this organization is providing a benefit to a particular individual. There is no public benefit and the organization is not eligible for registration as a charity.

An organization provides financial assistance for groceries and utilities to current, former, and descendants of, employees of the XYZ Corporation who are in need.

By its nature, it is not immediately known who the beneficiaries will be. Further, the benefit is ongoing and not limited to people who are alive and known when it takes effect. As such, this organization is eligible for registration as a charity.

21.    For more information on defining eligible beneficiaries in charitable purposes, see Charitable Purposes and Guidance CG-019, How to draft purposes for charitable registration.

22.    For more information about public benefit, see Policy statement CPS-024, Guidelines for registering a charity: Meeting the public benefit test.

Selecting beneficiaries

23.    An organization should have criteria in place to select who will benefit from its poverty relief activities. Documenting the selection criteria used to select beneficiaries, and documenting how the relief is being provided will be essential to maintaining adequate books and records.Footnote 20 Footnote Footnote 20 

24.    There is no uniformly accepted measure of either poverty or an adequate standard of living. This provides flexibility for charities when establishing criteria for beneficiaries under the relief of poverty. Charities must have well-reasoned criteria and processes for how to choose their beneficiaries.

25.    Factors that will determine the appropriateness of an organization’s selection criteria and process include the value of the benefit being provided, the frequency of the benefit being provided, and the location of the organization’s programs. These factors help assess the potential for the benefit to be accessed or abused by those not in need of poverty relief. The CRA recognizes that screening beneficiaries may not be necessary if the charity has determined that the potential for, and impact of, abuse is negligible.

Examples

A charity provides assistance to individuals with accessing and applying for tax credits, benefits, and deductions that are targeted to low-income families and individuals.

The charity would not be required to screen its beneficiaries because the charity has determined that individuals not in need of the charity’s services are not likely to ask the charity for relief.

A charity pays the utility bills of people in need.

There would be a need for the charity to screen its beneficiaries. This is because the benefit being provided can be more than modest in value especially if it’s provided over longer periods of time. As such, the charity should screen its beneficiaries and consider including in its selection process a mechanism that ensures that its existing beneficiaries continue to remain eligible for its poverty relief activity. This can be done by establishing recurring follow-ups with beneficiaries on their eligibility criteria. This will ensure that the charity will be less prone to abuse by individuals not in need of poverty relief.

26.    Charities can choose to use models of poverty indicators that have been introduced and used by various government agencies for a variety of social programs to determine eligible beneficiaries in Canada. For example, the CRA accepts the Low-Income Cut-Off, the Low Income Measure, the Market Basket Measure, and the Core Need Income Threshold.Footnote 21

27.    Charities can also develop their own criteria. Generally, collecting some or all of the following information through an application form or other similar method can be helpful when determining whether beneficiaries are in need of poverty relief:

  • employment income and status
  • total household income (including pension, social assistance, child support, spousal support)
  • number of dependents
  • value of assets (for example, investments, registered retirement savings plans, properties)
  • medical expenses
  • child care expenses
  • commuting expenses to and from employment

These are only some examples. Other pieces of information, can also be useful in establishing selection criteria.

Exceptions

28.    There are instances where activities that relieve poverty can be made available to recipients who are not experiencing poverty if doing so adds to the effectiveness of a program.

29.    The benefits provided to non-eligible recipients by a program to relieve poverty should be necessary, reasonable, and proportionate to the effect of having those recipients being included has on the participation of eligible beneficiaries. The charity should be satisfied that the including of non-eligible recipients is an effective way of furthering its purposes.

Example

A charity that provides a breakfast or lunch program to students in need at a specific school may want to include all students in the program, regardless of their financial situation, to create an inclusive environment for the beneficiaries.

C.    Other considerations

Tax implications

30.    Charities that provide financial assistance may need to provide a T5007, Statement of Benefits slip to their beneficiaries. For more information, see Guide T5007, Return of Benefits.

Benevolent funds

31.    Many religious and other organizations establish benevolent funds to aid individuals in need. Charities should be aware that donors can only gift funds with a general direction that the funds be used in a particular program. However, all decisions regarding the use of a donation within a program, including which specific beneficiaries will benefit from the donation, must rest with the charity.

Partnering with other organizations in Canada

32.    Charities may find that they need to hire, enter into agreements with, or pool their resources with other organizations to deliver specific charitable programs. For more information on working with organizations that are not registered charities, see Guidance CG-004, Using an intermediary to carry out a charity's activities within Canada.

Activities outside Canada

33.    Many considerations, not discussed in this guidance, exist for organizations that have activities abroad. For more information on working outside of Canada, see Guidance CG-002, Canadian registered charities carrying out activities outside Canada.

Community economic development

34.    Charities with poverty relief activities in areas of social and economic deprivation should see Guidance CG-014, Community economic development activities and charitable registration, for more information.

Footnotes

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