Registered charities making grants to non-qualified donees
December 19, 2023
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.
1.0 Introduction and key principles
1. Many organizations in Canada and internationally contribute to charitable activities, but do not have registered charity status with the Canada Revenue Agency (CRA). We refer to these organizations as non-qualified donees in this guidance.Footnote 1
2. The Income Tax Act was amended in 2022Footnote 2 to create a new way for registered charities to work with non-qualified donees: by making grants to grantees.
3. Charities can also work with non-qualified donees as intermediaries. A charity can do this if it maintains ongoing direction and control of the activity that the non-qualified donee performs on its behalf. In this kind of arrangement, the activity must be the charity’s own.Footnote 3
4. With grants, a charity can support the grantee’s own activities, provided the charity shows that it meets the Income Tax Act requirements set out in this guidance.
5. This legislative change recognizes the significant value that non-qualified donees bring to charitable work in Canada and internationally. This new option was introduced to provide charities with a means to build more collaborative and equitable partnerships.Footnote 4
6. This guidance is not law. Instead, it recommends ways a charity can meet the Income Tax Act requirements while taking reasonable, flexible, and proportionate measures based on the nature of each grant. To do this, the charity should apply due diligence when making the grant. This allows the charity to account for its use of tax-assisted resources.
1.2 Technical terms and definitions
7. For the purposes of this guidance:
- “accountability requirements” refer to the Income Tax Act requirements for making a grant.
- “accountability tools” refer to due diligence measures we recommend a charity apply to meet the accountability requirements.
- “charity” includes all three types of registered charities: charitable organizations, public foundations, and private foundations.Footnote 5
- “due diligence” refers to steps taken to satisfy the legal requirements for granting under the Income Tax Act; this guidance recommends a process for doing this through accountability tools.
- “grant” refers to a “qualifying disbursement” made to a “grantee organization”, as defined in the Income Tax Act.Footnote 6 A grant can include both cash and non-cash resources. While the term “grant” is commonly applied to other arrangements within the charitable sector, this guidance uses the term “grant” in relation to the Income Tax Act requirements for making a “qualifying disbursement” to a “grantee organization”.
- “grantee” refers to a “grantee organization”, as defined in the Income Tax Act, and includes “a person, club, society, association or organization or prescribed entity, but does not include a qualified donee”.Footnote 7
- “risk” in general refers to conditions that could compromise the charity’s registration and the public’s trust in the charitable sector. In terms of this guidance, we recommend a charity apply due diligence to mitigate the risk of grant resources being misused.
1.3 Income Tax Act accountability requirements
8. A charity can enter into a wide variety of granting arrangements with grantees, as long as the charity meets the Income Tax Act requirements:Footnote 8
qualifying disbursement means a disbursement by a charity, by way of a gift or by otherwise making resources available,
(a) … to a qualified donee, or
(b) to a grantee organization, if
(i) the disbursement is in furtherance of a charitable purpose (determined without reference to the definition charitable purposes in [subsection 149.1(1) of the Income Tax Act]) of the charity,
(ii) the charity ensures that the disbursement is exclusively applied to charitable activities in furtherance of a charitable purpose of the charity, and
(iii) the charity maintains documentation sufficient to demonstrate
(A) the purpose for which the disbursement is made, and
(B) that the disbursement is exclusively applied by the grantee organization to charitable activities in furtherance of a charitable purpose of the charity …
9. To meet these accountability requirements, a charity must be able to interpret and apply key terms in the legislation, such as the following:
- “exclusively applied”
- “in furtherance of a charitable purpose of the charity”
- “maintains documentation sufficient to demonstrate”
10. Our interpretation and application of these terms is explained at a glance in section 1.4, and in detail throughout this guidance.
11. A charity does not have to follow our granting recommendations. It can show in its books and records that it has used other measures to meet the accountability requirements.
12. A charity could jeopardize its registration if it does not meet the requirements of the Income Tax Act.Footnote 9 Depending on the degree of the non-compliance, the charity will be subject to CRA compliance measures. This could include education letters, compliance agreements, sanctions, or in the most severe cases, revocation of registration.Footnote 10
13. At a glance, here is how we interpret and apply the accountability requirements:
Text from legislation
|CRA’s application and recommendations
|Details in guidance
|"the disbursement is in furtherance of a charitable purpose (determined without reference to the definition charitable purposes in [subsection 149.1(1) of the Income Tax Act]) of the charity"
|We interpret this requirement to mean that a charity can only make grants that further its stated common law purposes, that is, purposes that fall within one of the four categories of charity.
A charity may need to amend its purposes to make grants.
If the grant activity cannot be shown to further the charity’s charitable purposes, the charity should not proceed with the grant.
|Charitable purposes are discussed in section 3.1.
|"the charity ensures that the disbursement is exclusively applied to charitable activities..."
|A charity must make sure that the grant resources are used only for charitable activities that further its charitable purposes.
Despite best efforts, a charity may not be able to "ensure" or guarantee the grant resources will be applied exactly as intended. For this reason, we aim to adopt a reasonable, flexible, and proportionate approach to granting.
We recommend the charity apply due diligence by using accountability tools over the grant's duration. The grant's risk influences the level of due diligence required: limited, moderate, or extensive.
|Due diligence and accountability tools are discussed in section 3.
|"the charity maintains documentation sufficient to demonstrate…"
|The Income Tax Act requires a charity to keep adequate books and records. It also adds a specific documentation requirement for grants.
We aim to adopt a reasonable, flexible, and proportionate approach to grant documentation.
We recommend the charity maintain documentation to show:
The extent of the documentation is based on the level of due diligence needed for each grant.
|Due diligence, accountability tools, and books and records are discussed in section 3.
2.0 How can a charity operate?
14. The Income Tax Act allows a registered charity to operate in the following ways:
- carrying on its own charitable activities through:
- its staff and volunteers
- an intermediary, over which a charity must exercise direction and control
- making qualifying disbursements through:
- gifts to qualified donees
- grants to grantees (non-qualified donees), where a charity must meet accountability requirements
15. When a charity intends to collaborate with another organization, it should consider at the outset whether it will do this through a grant to a grantee, a gift to a qualified donee, or by carrying on its own activities through an intermediary. This decision rests with the charity. The charity can determine what is most appropriate in the circumstances, based on its own processes and the information and recommendations set out in the relevant guidance. The charity should clearly show which approach it has taken in its books and records.
16. This guidance focuses on our recommendations for making grants to grantees. For more details on how a charity can operate, including how granting differs from direction and control, see below.
Explanation of how a charity can operate
17. Under the Income Tax Act, a charity continues to be able to carry on activities using an “intermediary”, provided the charity exercises “direction and control” over the activities. For more information about working through an intermediary to carry on charitable activities, see:
- Guidance CG-002, Canadian registered charities carrying on activities outside Canada
- Guidance CG-004, Using an intermediary to carry on a charity's activities within Canada
18. A charity can also operate by making a qualifying disbursement through either a gift to a qualified donee or a grant to a grantee. A qualifying disbursement includes both cash and non-cash resources.
Comparing accountability requirements and direction and control
19. Below are some similarities and differences between the accountability requirements and direction and control rules.
The requirements for granting (accountability requirements) and own activities (direction and control)Footnote 11 overlap in many respects, including that in both arrangements the charity:
- works with a non-qualified donee to pursue charitable activities
- ensures and demonstrates that it furthers its own charitable purposes through the charitable activity
- meets specific requirements and shows it has done this through documentation in its books and records
Here are some key differences with grants:
- Our recommended approach to grants focuses on accountability and due diligence, rather than directing and controlling the charity’s own activities.
- Charitable activities are those of the grantee, rather than those of the charity.
- A charity can support the grantee’s new or existing activities.
- The relationship between a charity and grantee can be a collaboration, rather than a hierarchy with the charity in charge.
- A charity is not required to provide ongoing instructions to the grantee.
- Granting is not intended to make the grantee a representative of the charity, but instead allows the grantee autonomy to carry on its programs as an independent party.
- The grant arrangement could avoid the unintended consequences for a charity carrying on its own activities through an intermediary, such as incurring liability to third parties under an agency relationship.
Note that whether engaged in its own activities or making a grant, a charity must meet the requirements of the Income Tax Act.
Changing a relationship with a non-qualified donee from intermediary to grantee, or vice versa
20. We recognize that a charity’s relationship with a non-qualified donee may evolve, and the charity can convert its relationship with the non-qualified donee. For example, the relationship can change from intermediary to grantee, or from grantee to intermediary. The charity must meet all accountability and direction and control requirements at the time of the change, and should document this change in its books and records.
A Canadian charity with purposes to advance education carries on its own activities of operating a school in Tanzania through a non-qualified donee (intermediary). The charity maintains direction and control by providing instruction to the intermediary, having appropriate representation on the project’s management committee, and other measures.
With the success of the program, the charity wants to continue furthering its purposes through these activities, but no longer wants to exercise direction and control over them.
The charity decides to continue its financial contributions by making grants to the non-qualified donee (grantee). The charity reviews any granting concerns it may not have previously considered, outlines and updates the due diligence it previously conducted, and implements other accountability tools, including a written agreement that documents the grant’s terms and conditions. The charity documents this transition in its books and records and reports this as a grant in its T3010, Registered Charity Information Return.
21. We recommend the following due diligence steps for making grants:
22. A charity should apply a reasonable and consistent approach to its grants, that is, treating similar grants in a consistent way.
23. Exercising appropriate due diligence helps protect the charity if the grantee is not able to follow through on the grant agreement.
24. We understand that charities may need to devote reasonable expenses to administer and manage the grant.Footnote 12 We consider these to be necessary and important.
25. The grant must be exclusively applied to charitable activities that further the charity’s charitable purposes.
26. Purposes, or “objects”, are an organization’s goals or objectives. Each must be clearly stated in an organization’s governing document. We rely on the common law to determine when purposes are charitable and whether the activities further the charitable purposes.
27. For more information on purposes and activities, see sections 3.1.1 to 3.1.2 and Guidance CG-019, How to draft purposes for charitable registration.
28. First and foremost, the grant activity must further a charitable purpose of the charity. The provision is worded this way because it is not sufficient to make a grant for any charitable purpose; instead, a charity must devote its resources to the charity’s own purposes found in its governing document.
29. Many charities will be able to expand their operations to include making grants to grantees using their existing purposes.
30. However, a charity would need to amend its purposes if it:
- wants to make a grant for a purpose that is not stated in its governing document.
- does not have a stated common law charitable purpose within one of the four categories of charity. This includes a foundation that only has a purpose to make gifts to other qualified donees.
31. A charity could not make a grant with only a “making qualifying disbursements” or “making grants” purpose. A “grant-making” purpose in and of itself would not fall within one of the four categories of charity. Also, when drafting a charitable purpose, it is not necessary for the charity to specify that the organization will be making grants.
32. Here is an example of a purpose that would be suitable for a grant that advances education:
- To advance education by providing books, equipment, and educational aids to students.
33. Here is an example of a purpose that would be suitable for a grant that relieves poverty:
- To relieve poverty by providing necessities of life, including food, clean water, medical supplies, clothing, or shelter to victims of disasters.
35. Here are some examples of general requirements that a charity should keep in mind when making grants:
- Comply with Canadian law and public policy for grant activities inside and outside Canada: before making grants, a charity should also become aware of local laws and how they may affect the grant activities.
- Meet the public benefit test: grant activities that do not meet the public benefit test would not be considered charitable. For more information, see CPS-024, Guidelines for registering a charity: Meeting the public benefit test.
- Do not confer an unacceptable private benefit: a charity must ensure it does not confer an unacceptable private benefit on a person, entity, or organization when it makes a grant. Generally, an unacceptable private benefit goes beyond what is considered to be charitable. An acceptable private benefit is typically one that is incidental to achieving a charitable purpose because it is necessary, reasonable, and proportionate to the resulting public benefit. While unacceptable private benefit could arise in any grant situation, the charity should be especially mindful of unacceptable private benefit when granting:
- resources that are susceptible to non-charitable use
- to individuals
- to for-profit organizations
For more information, see section 3.2, as well as description of grant activity and granting real property. See also CPS-024, Guidelines for registering a charity: Meeting the public benefit test.
3.2 Assess the grant’s risk level – low, medium, or high – based on factors that may affect the charity’s ability to meet the Income Tax Act requirements
36. To “ensure” grant resources are “exclusively applied” to charitable activities that further the charity’s charitable purposes, a charity may find it helpful to assess the level of risk at the outset of the grant. The matrix below is a guideline to explain the non-exhaustive factors the charity should think about. The charity can weigh the conditions of the grant to determine the overall risk level: low, medium, or high.
|Purposes and governing documents of grantee organizationFootnote 14
|Governance structure of grantee organizationFootnote 15
|Grantee’s regulation and oversight
|Private benefit concernsFootnote 16
|Nature of resources granted
37. If there is a significant change in grant conditions, the charity should assess whether the grant’s overall risk level has changed, and work with the grantee to adjust the grant’s terms. For more information, see below.
What are some examples of significant changes in grant conditions?
38. Some examples of increased risk could include:
- amendment of the grant’s terms
- change in the charity or grantee’s leadership
- collapse of financial infrastructure in a country
- concerns around record keeping and reporting
- decline in the security conditions in the country or region where the grant activity takes place
- presence of a private benefit concern; for example, the charity learns that the grantee is making profits from the grant activity and not applying the profits to the charitable purpose of the grant
39. Some examples of decreased risk could include:
- established strong track record with a grantee, such as the grantee continues to meet workplans, provides high quality reporting, or the charity establishes rapport with a grantee after working together for a considerable amount of time
- decreased value in the charitable resources; for example, it is no longer difficult to access the granted medication and the cost is reduced
- improved security conditions in the country or region where the grant activity takes place
3.3 Determine how much due diligence the charity needs to apply through accountability tools based on the risk level
40. The risk level will help determine whether the use of accountability tools will be limited, moderate, or extensive. The accountability tools help a charity meet the accountability requirements.
3.3.1 Explore the accountability tools
41. See below for more information about each tool.
Research and review of grantee, including documenting the process
42. Learning about a grantee before giving them a grant helps a charity ensure the resources will be exclusively applied to charitable activities in furtherance of the charity’s charitable purposes, as required by the Income Tax Act.
43. As part of the review, a charity should assess and document information about the grantee. This could include:
- purposes and mission
- associated individuals or entities
- experience and capacity to carry on the grant activity (for example, personnel and equipment)
- potential use of the charity's resources
44. The review can take many forms, such as:
- independent research
- in-person visits
- virtual meetings
- requesting information from the grantee, such as governance documents and website links related to the grant activities
- reviewing the outcome of past grants
- letter of reference or support
45. We recommend that a charity review every grantee. However, if the charity has already formed a successful working relationship with the grantee, the review can be limited.
46. There may be reasons why it is not feasible to conduct an extensive review at the outset. For example, in an emergency relief situation, a charity may not have time to conduct a significant review. Or, if the grantee is a newer organization, it may not be possible for the charity to review the grantee’s experience and reputation. In cases like these, the charity should follow up on this review after it obtains additional information about the grantee. The charity could also work with another registered charity with experience in this area or carry on its own activities through an intermediary by exercising direction and control.Footnote 21
47. If concerns about the grantee arise, a charity could document the way it will address them in its books and records. The charity should resolve any concerns before making a grant to the grantee.
Description of grant activity, including its intended outcome and charitable purpose
48. Reviewing and documenting the grant activity with the grantee helps to meet the accountability requirements. Creating a detailed description allows the charity and grantee to collaborate and agree on a shared understanding of the grant’s purpose and terms. Including this description in a written agreement provides documentation to refer back to.
49. Here is some information to consider when drafting a description:
- accountability tools to satisfy the accountability requirements
- charitable activity and the charitable purpose it furthers
- deliverables and performance objectives
- location of grant activities
- partners, contractors, and third parties the grantee intends to use to carry on the grant activity
- public benefit, and ways to address any unacceptable private benefit
- start and end dates, and other relevant timelines
50. Working through these and other considerations with the grantee helps a charity further identify the due diligence needed.
Written agreement, including minimum standards, milestones, outcomes, and budgets
51. A charity can also meet the accountability requirements by formally settling on the grant’s terms and conditions with the grantee.
52. Creating a written agreement:
- clarifies expectations, including roles and responsibilities
- confirms the grant terms and conditions
- documents the grant, including its charitable purpose and budget
- keeps grant arrangements on track
53. The Income Tax Act requires a charity to maintain grant documentation, including documenting the grant’s purpose. For this reason, we recommend that the charity enter into a written agreement for most grants.
54. A written agreement may not be necessary for non-recurring grants of $5,000 or less. Other documentation may be enough to satisfy the requirements in very low-risk circumstances. This documentation could include written communications, such as email records and meeting minutes.
55. If a charity expects to make ongoing grants of $5,000 or less to a grantee, annually for example, we recommend the charity have a written agreement with the grantee.
56. When an applicant for charitable registration intends to make grants, it should include with its application a copy of any existing written agreements and a template for future written agreements. This helps us to assess whether the applicant can satisfy the accountability requirements.
57. We recommend that a charity have a system in place to periodically review its granting practices, including the written agreements, to make sure they stay current.
58. We do not provide a template for written agreements. Here is a list of the information that could be included in a grant agreement, depending on the nature and circumstances of the grant:
- a provision that clearly indicates the charity intends to make a grant (as opposed to carrying on its own activities through an intermediary)
- start and end dates
- full legal names and physical addresses of the parties, where possible
- a description of the grant activity and the charity's charitable purpose it furthers
- the location of the activity
- where appropriate, provisions for:
- transferring resources in periodic instalments based on demonstrated performance, as well as for withholding resources
- terminating the grant
- returning unused resources when required
- a provision that any resources transferred to the grantee will continue to be used only for the charity’s charitable purposes in the future
- timelines and frequency of reports, including financial and progress reports (showing the receipt and disbursement of resources, and progress of the grant activity)
- a requirement for the grantee’s books and records to be sufficiently detailed to allow it to track the use of grant funds and provide an accounting to the charity in its reporting; and to track each grant separately from its other funds in its books and records
- the signature of directors, trustees, or like officials authorized to receive the grant
- the date the agreement was signed
Reporting plan, including final reports, and interim reports if suitable
59. A reporting plan helps a charity meet the accountability requirements by tracking and documenting whether the grantee uses the resources as set out in the agreement.
60. Some examples of reporting could include:
- final reports with supporting documentation, such as expense receipts, financial statements, and bank records
- interim reports, if appropriate, with supporting documentation
- records of communication by telephone, videoconference, email
- photographs or videos
- audit reports
- on-site visits from the charity's staff
61. We recommend that every grant require a final written report from the grantee, along with supporting documentation, if appropriate. By doing this, the grantee can provide the charity with the information the charity needs to show it has met the accountability requirements. The charity could document in its books and records that it has reviewed the final report and that no further action is required. We also recommend obtaining interim reports for longer-term and higher-risk grants.
Transfer schedule, for longer-term or higher-risk grants, if suitable
62. In longer-term or higher-risk situations, a charity should consider transferring resources in periodic instalments, rather than in one lump sum. This helps the charity to meet the accountability requirements and mitigate any losses if resources are not applied according to the terms of the agreement.
63. A charity should also include in the written agreement the right to terminate the grant and have the grantee return any unused resources.
Separately tracked funds, such as a separate ledger
64. Asking the grantee to track the charity’s funds is an accountability tool that will help both the grantee and charity document the use of resources. Tracking does not mean that the grantee needs to maintain separate books and records or a separate bank account in respect of the grant.
65. During the description of activity and written agreement stages, a charity should request that the:
- grantee track each grant separately from its other funds in its books and records, if feasible
- grantee’s reports and supporting documentation contain enough detail to allow it to show the use of grant funds when it reports back to the charity
3.3.2 Determine the level of due diligence based on risk
66. Using the risk assessment tool in section 3.2.1, determine the level of due diligence needed to meet the accountability requirements. The accountability tools are not exhaustive and their suitability depends on the nature of individual grants. We recommend using the accountability tools in the table below, as applicable.Footnote 22
|Research and review
|Limited review, particularly where the charity has a pre-existing relationship with the grantee
|Moderate review, such as independently researching the grantee
|Extensive review, such as requesting information from the grantee or an in-person visit
|Description of grant activity
|Simple description of grant activity
|Written description of key elements of grant activity
|Detailed written description of grant activity
|Simple agreement; other documentation, such as email records and meeting minutes, are likely sufficient for non-recurring grants of $5,000 or less
|Formal written agreement with key terms
|Formal written agreement with comprehensive terms
|Simple written final report
|Written final report, covering key deliverables, and if relevant to the charity, interim reports
|Detailed written final report, and where appropriate, interim reports
|For the charity to consider under the circumstances
|If likely to be a concern for the charity
|Yes, unless resources cannot be transferred periodically
|Separately tracked funds
|Yes, such as a simple ledger and supporting documentation
|Yes, such as a ledger of key elements and supporting documentation
|Yes, such as detailed record keeping and supporting documentation
3.4 Apply the accountability tools in collaboration with the grantee
67. By working together with the grantee, the charity can meet the accountability requirements by using the accountability tools described in section 3.3. See below for an example of applying accountability tools to a grant.
A charity has purposes to relieve poverty. While on a short-term relief and development trip outside Canada, the charity’s staff and volunteer team are approached by a local organization involved in water sanitation projects. The organization asks the charity if it would be willing to contribute to their work. These interactions allow the charity’s team to evaluate the local group’s capacity and its history of planning and completing a variety of water service projects. Based on this experience, the team recommends to the charity’s board that it provide a grant to this local group, which would be in furtherance of the charity’s charitable purposes.
The charity’s staff have reviewed the grantee. The charity’s board reviews and assesses the recommendation. The proposed grantee has experience, capacity, a strong community presence, and widespread recognition and support for its work. There is some political instability in the country where the activities would take place, but this has not previously impacted the grantee’s work. The local group needs $50,000 in addition to its own investment to complete this project. The board concludes that the grant is medium risk, does its due diligence, approves the grant, and records the reasons for its decision in the board meeting minutes.
Charity staff prepare a written agreement that includes a description of the project. The agreement schedules two instalments of $25,000. Before sending the second instalment, the charity requires a brief interim report, as well as one video meeting in order to ask any questions. The grant’s terms also require a final written report.
Under the transfer schedule, the grant is to be sent in two instalments. The first instalment is sent on schedule. The second instalment is temporarily held back until the grantee obtains the required equipment and tools to continue the project.
The interim report is a one-page summary of the progress achieved so far. The video call is scheduled during one of the charity’s regular board meetings. The grantee answers all of the board’s questions in a satisfactory way. The board records the report and video call in its board meeting minutes.
Upon completion of the program, the charity receives an emailed report with links to photos and videos of the new community well and water filtration system in use. The report also includes a financial statement from the grantee. The charity records these details in its books and records, including that it is satisfied that the grantee has met the grant’s terms and furthered the charity’s charitable purposes.
In this example, if the grantee did not provide a satisfactory report, the charity might consider requesting a follow-up report to answer specific questions. The charity might also decide it will not send the second instalment. The charity’s decision and reasons for suspending the grant should be included in its books and records.
3.5 Document the charity’s due diligence over the grant’s duration in its books and records
68. Under the Income Tax Act, a charity must keep adequate books and records in Canada, containing enough information to allow us to determine whether the charity is operating in accordance with the Income Tax Act.Footnote 23 The Income Tax Act also adds specific documentation requirements for grants.
69. With respect to grants, a charity’s books and records must allow us to check whether:
- the charity’s grants meet the accountability requirements
- the grantee’s use of resources can be verified
- the grantee continues to use the grant’s resources for the purposes and activities set out in the grant’s terms
70. Our recommendations for keeping adequate books and records are linked to the accountability tools suitable for the particular grant arrangement. For more information, see the accountability tools discussion throughout section 3.
71. The charity should be able to obtain from the grantee any supporting documents in original or electronic format, such as a photocopy, scanned document, or photograph.
72. A charity that fails to keep adequate books and records exposes itself to possible CRA compliance measures. This could include education letters, compliance agreements, sanctions, or in the most severe cases, revocation of registration.Footnote 24
4.0 Special topics: limits, directed gifts and conduits, reporting, pooled grants, charitable goods, real property, disaster or emergency relief, anti-terrorism considerations, grants inside and outside Canada
73. The remainder of this guidance details special granting topics. Learn more about each topic below.
Qualifying disbursement limit – charitable organizations
74. The Income Tax Act requires that a charity that is designated as a “charitable organization” disburse no more than 50% of its income by way of gifts to qualified donees; otherwise, it may be re designated as a public foundation.Footnote 25 However, there is no limit on how much of its income a charitable organization may devote to making grants to grantees (non-qualified donees), and this will not affect a charity’s designation as a charitable organization.
Directed gifts and acting as a conduit
75. The Income Tax Act provides that a charity could have its registration revoked if it accepts a gift from a donor that is expressly or implicitly conditional on the charity “gifting” it over to a specific recipient, other than a qualified donee.Footnote 26 This prohibition covers grants to grantees. The intent of this provision is to “prevent organizations from acting as conduits in the making of a directed gift” to a non-qualified donee.Footnote 27 This prevents situations such as where a charity, with donor knowledge, solely exists as a fundraising arm of an affiliate organization. In these circumstances, the charity would not be in a position to make decisions around the use of resources, or act independently of the affiliate.
76. Here is an example of an explicitly conditional gift:
- A donor indicates that a gift must be used to grant money to a specific non-qualified donee, and if it is not used for that purpose, the funds must be returned to the donor. This could constitute a legally binding conditional gift, and if the charity accepted it, this could jeopardize its registration.
77. Here is an example of an implicitly conditional gift:
- A charity includes the name of a non-qualified donee in its own name, purposes, or other formal documents, indicating this would be the sole recipient of any grants the charity makes. Any funds the charity receives from a donor could be implicitly conditional on the charity granting it over to the specified non-qualified donee, and could jeopardize the charity’s registration.
78. To avoid concerns about directed gifts, the charity should retain authority over the use of its resources, and clearly communicate this to the donors. For example, the charity could communicate that:
- Donors can indicate their program preference for how a charity will apply their donation, but ultimate authority on the use of resources must rest with the charity.
- If the charity does not use the donation the way the donors prefer, the charity will not return the donation to the donors.
79. For example, this message could be included on the donations page of the charity’s website and in any of its fundraising communications.
80. Provided a charity can show it retains authority over the use of its resources, we will consider the charity to not be engaged in directed giving.
81. Alternatively, a charity could use the donation to carry on its own activities through an intermediary, provided the charity exercises direction and control over the use of its resources.
82. A charity can make many kinds of grants, including non-cash grants. For reporting purposes, and to help the charity meet its disbursement quota, the charity must be able to determine the fair market value of non-cash grants.Footnote 28
83. The Income Tax Regulations were amended in 2022 to provide:Footnote 29
For the purpose of subsection 149.1(14) of the Act, the following is prescribed information for the public information return of a charity in a taxation year:
(a) in respect of each grantee organization that received total qualifying disbursements from the charity in excess of $5,000 in the taxation year, the name of the grantee organization
(b) the purpose of each qualifying disbursement made to a grantee organization referred to in paragraph (a) in the taxation year
(c) the total amount disbursed by the charity to each grantee organization referred to in paragraph (a) in the taxation year
84. If a charity disburses a total of more than $5,000 in cash or non-cash grants to a grantee in a taxation year, whether in single or multiple grants, the charity must report in the T3010, Registered Charity Information Return, all of the following for each applicable grantee:
- the name of the grantee
- the purpose of each grant made to the grantee
- the total amount granted to the grantee in the taxation year
85. For these grants, the charity also provides information on the T3010 about the location where the grant activity takes place.
86. When a charity makes a grant that totals $5,000 or less in cash or non-cash grants to a grantee in a taxation year, the T3010 asks for the total number of these grantees and the total amount of all of these grants.
87. Grant information reported in the T3010 will be available to the public, including the names of grantees that received more than $5,000 from the charity, and applies to grantees who operate both inside and outside Canada.
88. A charity can apply to the CRA to make a special request that certain information not be made available to the public if its release would place the charity, grantee, their staff, or volunteers in danger.
89. For more information on reporting grants, see T4033 Completing the Registered Charity Information Return.
Information for organizations that want to provide disaster or emergency relief
90. After a disaster or other emergency, organizations often want to help those affected. Registered charities may need to amend their charitable purposes to provide disaster relief. Non-qualified donees may want to apply for charitable status.
91. Because the situation is usually urgent, we typically assign priority to these files. However, disaster or emergency relief organizations must still meet all legal requirements for registration.
92. Applying for registered charity status may not be the most suitable path for a non-qualified donee. However, it may be eligible to receive a grant from an existing registered charity to carry on disaster relief.
93. After a disaster or other emergency, local authorities may only allow access to well-established relief organizations. If an organization does not have a background in this type of work, it is often faster and more effective to support existing registered charities or other qualified donees that have the experience, resources, and infrastructure in place to respond. Registered charities can also provide grants to established and capable non-qualified donees.
94. A charity may wish to “pool” its resources with multiple organizations (other grantors) when it makes a grant. We recognize that joint initiatives such as pooled grants operate differently than one-on-one granting arrangements. We recommend the charity sign onto at least one written agreement with all parties when the charity engages in pooled grants. We recognize this may not always be feasible and that other accountability arrangements may be acceptable.
95. Below are our special accountability considerations for pooled grants.
Special accountability considerations for pooled grants Research and review
- Review both the grantee(s) and grantors.
Description of activity
- A description of the charity’s involvement in the pooled funding, including the resources granted.
- Ideally, the charity signs onto a written agreement with all parties.
- Given the complexity of pooled grants, a charity should show that it has made reasonable efforts to keep track of the grant activity.
- A charity should only enter into a pooled funding arrangement when written interim or final reports will be provided.
- The reports can be directed to all grantors, not just the charity.
- The reports should clearly show that the resources provided were used in the intended way and furthered the charity’s charitable purposes.
- If the grant is higher risk or the activity carries on over a longer term (for example, more than two years), the charity should transfer its resources on a periodic schedule.
Separately tracked funds
- Ideally, the grantee(s) separately tracks the charity’s contribution to the pooled grant.
- This may not be feasible, so the charity should maintain records of its own contributions to the grant, such as bank records, email communications, or other forms of confirmation.
96. These accountability tools allow a charity to show that it made a grant that was carefully considered and resulted in the furtherance of the charity’s charitable purpose in a way that meets the accountability requirements.
97. In addition to the factors identified in section 3.2, there are unique factors to consider when charities pool resources. We recommend more extensive grant documentation in circumstances such as when the:
- number of grantors or grantees is large
- grantors are made up predominantly of non-charitable organizations
- grantee has never been the recipient of pooled grants before
- charity grants real property
- purpose of the pooled grant is a mix of both charitable and non-charitable purposes
98. If it is not possible to apply the accountability tools, we recommend approaching pooled grants cautiously. For complex pooled grants, a charity may wish to consult with others who have experience in this area before entering into the arrangement.
A group of 10 Canadian relief organizations, all registered charities, want to support efforts for emergency relief in a country at war. A grantee with a strong reputation wants to provide food and clothing worth $500,000 to the children affected, and needs some financial support.
Some of the charities have successfully worked with the grantee in different contexts. Others have no experience with the grantee. Most of the charities are familiar with one another, but some charities are new to this network.
The overall risk is high due to the security conditions in the country and monetary value of the grant, among other factors.
Given the emergency nature of the project, there is not a lot of time to conduct significant up-front due diligence. The charities set up a conference call to consult with experts who have responded to similar emergencies in the past and have experience in the region.
Based on the experts’ feedback, the charities decide to start with a smaller grant of $25,000 cash each, and to consider a second grant upon successful completion. The charities create a shared summary that records their rationale for moving forward with the pooled grant, while doing what they can to mitigate concerns. The charities list reasons such as the nature of the emergency, the reputation of the grantee, and the collective experience of the charities in managing this type of work.
The grant duration will be six months. One written agreement is drafted between all of the granting charities and the grantee. It describes the project and requires two written reports – the first at the midway point of the project, and a final report prior to the end of the calendar year. Rather than tracking each of the grantors’ contributions, the grantee will only track the pooled grant as a whole. The grantee will also provide a report with financial information, which could be addressed to the charity, or to all participants in the pooled arrangement. The charities will meet with the grantee on a video call halfway through the grant to see if they can provide any expert assistance, and to hear how the program is going.
At the video call, the grantee says the situation is worse than anticipated and asks if the grant terms can be changed to allow the grantee to spend the cash faster. The grantee shares the interim report, which is a PowerPoint presentation that explains the challenges and expenditures to date. The charities take a vote, which the written agreement requires to make a change. The majority agrees to disburse the funds more quickly. The agreement is changed and signed by all parties. Each charity files in its books and records a copy of the PowerPoint presentation, rationale for the change, and modified agreement.
At the end of the grant, the grantee is able to show how the cash was used in a final report. Reviewing the same paperwork and process, the charities agree to issue another grant to the grantee to continue the program, and this time, for a larger grant.
In the meantime, other charities and non-qualified donees hear about the success of this program and also want to pool their resources. The 10 existing charities use the time during the first grant to consider the impact the new grantors will have on the project, and whether to include them in the new grant agreement. As the program grows, if it becomes too onerous to continue having a written agreement, the charities will rely instead on creating a collective terms of reference to support group decision-making and obtain the necessary documentation from the grantee.
Granting charitable goods
99. If a charity is transferring charitable goods only, this is generally considered a low-risk activity because the non-cash resources would likely only be used for charitable purposes. For example, medical supplies like antibiotics and instruments will likely only be used to treat the sick, while school supplies like textbooks will likely only be used to advance education.
100. Charities should still be aware of other factors listed in section 3.2 that might require more due diligence.
101. Below are our special accountability considerations for granting charitable goods.
Special accountability considerations for charitable goods Research and review
- After reviewing the status and activities of the grantee (including the outcome of any past transfers from the charity), the charity can reasonably expect the grantee to use the charitable goods only for the intended charitable activities.
Description of activity
- The charitable goods should be described in a way that shows their only reasonable use would be to further one or more of the charity’s charitable purposes.
- The grantee understands and agrees to use the charitable goods only for the specified charitable activities, as documented (for example, in a written agreement).
- The charity should require a final written report from the grantee, accounting for how the grantee used the charitable goods.
- A charity with purposes to promote health grants medical supplies to a foreign disaster relief organization.
- A charity with purposes to advance religion grants religious books to a library or school that is a non-qualified donee.
- A charity with purposes to relieve poverty grants food vouchers to a local community centre that is not a qualified donee.
Granting real property
102. A charity may wish to grant real property to a grantee. For example, this includes transferring property title or granting cash for a grantee to purchase or renovate real property. In most situations, the charity is not permitted to transfer the title or ownership of real property to a non-qualified donee, including a local organization or government body. This is because the land and buildings might be used for non-charitable purposes. However, a transfer of real property might be acceptable as a grant to a grantee if the charity follows all legal requirements.
103. Granting real property is considered high risk, as it is difficult for the charity to ensure the property will continue to be used for the charity’s charitable purposes once it is granted. The charity should assess whether the real property may be used for non-charitable purposes, including providing an unacceptable private benefit. Before a charity grants any real property, we recommend contacting us to discuss available options.
104. Below are our special accountability considerations for granting real property.
Special accountability considerations for real property grants Research and review
- The charity should review the grantee and document the process. If concerns arise about the grantee, the charity should not proceed with a real property grant.
Description of activity
- In describing the activity, the charity should also determine and document the public benefit and resolve any concerns about unacceptable private benefit before proceeding.
- The charity should get adequate documentation from the grantee stating that the real property will be used only for charitable activities that further the charity’s charitable purposes. The documentation should also provide reasonable assurances that the property will, for its expected useful life, provide a public benefit. The charity should keep this documentation as part of its books and records.
- The charity should include a written provision that if activities that further the charity’s charitable purposes become impossible to continue, the grantee must seek the charity’s instructions as to which option the grantee should pursue:
- sell the property and return proceeds to the charity, or
- transfer ownership of the property to another party to continue with the programs and activities that further the charity’s charitable purposes
- The charity should require the grantee to track any profit arising from the real property, including if the grantee were to sell it. The charity should also require the grantee to ensure that any profit arising from the property is spent on the charitable activities that further the charity’s charitable purposes.
- To meet the accountability requirements, the charity should require documentation from the grantee on a periodic basis to confirm that the grantee is using the real property for the charitable activities and purposes agreed upon in the written agreement.
A charity has purposes to relieve poverty and advance education. The charity’s staff and volunteers regularly go on short-term relief and development trips to a country outside of Canada. During these trips, the charity’s team helps run educational programming alongside a local school that is a non-qualified donee.
The educational activities take place in a multi-purpose community hall that the school is permitted to use for a few hours each day. Over time, the school grows, requiring a facility of its own. The school does not have sufficient funds to purchase a facility, and no suitable spaces are available for rent.
The charity is not allowed to own property in the foreign country. It wants to make a grant to the school to purchase school property.
Leaders of the school are known to the charity through recent trips. The charity records the positive results of its research and review.
Together, the charity and school (grantee) agree on the grant’s terms. They enter into a written agreement that sets out the accountability tools they will use.
- describes activities that will be carried out at the facility and how the activities will benefit the community
- requires annual reports from the school about the facility’s use
- includes a provision that any funds generated by the facility, such as rental fees, will be used exclusively for facility operations and maintenance
- includes a provision that if activities that further the charity’s charitable purposes become impossible to continue, the grantee must seek the charity’s instructions as to which option the grantee should pursue:
- sell the facility and return proceeds to the charity, or
- transfer ownership of the facility to another party to continue with the programs and activities that further the charity’s charitable purposes
After the school has been purchased and the grantee has begun running the activities, the grantee provides a summary report to the charity with a breakdown of financials. The grantee continues to submit annual reports to the charity every year.
Grants and anti-terrorism considerations
105. A charity is responsible for making sure that it does not support terrorist activities, including by making a grant to an individual or group that is engaged in or supports terrorist activities (but see also the humanitarian exemption and authorization regime in the Criminal CodeFootnote 30 ).
106. For more information about a charity’s responsibilities with respect to terrorism, go to Checklist for charities on avoiding terrorist abuse.
107. Under the Charities Registration (Security Information) Act and the Income Tax Act, a charity's registration may be revoked if the charity makes its resources available, either directly or indirectly, to a listed entity, as defined in subsection 83.01(1) of the Criminal Code, or to any other entity (person, group, trust, partnership, or fund, or an unincorporated association or organization) that engages in terrorist activities or activities in support of them.
108. Any charity making a grant to a grantee that is listed as a terrorist organization will lose its charitable registration. The Income Tax Act also prevents individuals with a known history of supporting terrorism from becoming a director, trustee, or similar official of a charity.Footnote 31
109. Charities are also subject to prohibitions on funding or otherwise facilitating terrorism, as contained in the Criminal Code and various regulations enacted under the United Nations Act. For more information, go to Charities in the international context.
Grants inside and outside Canada
111. A charity’s purposes and activities must always comply with Canadian law. Before making grants to grantees operating outside Canada, the charity should become aware of local laws where the grant activities will take place, and how they would affect the grant. This will help the charity make sure the public benefit provided by the grant is not offset by harm to the grantee, the grant's beneficiaries, or anyone else.
112. Under Canadian law, most activities that are charitable in Canada are also charitable abroad. However, the courts have stated that some activities that are charitable in Canada may not be considered charitable under Canadian law if carried out in a different country. For example, it is charitable to make a grant that would increase the effectiveness and efficiency of Canada's armed forces, but it is not charitable under Canadian law to make a grant that would support the armed forces of another country.
113. Whether grant activities take place inside or outside Canada, they must not be contrary to officially declared and implemented Canadian public policy. For example, see CSP-P13, Public policy, and see anti-terrorism considerations in section 4.
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