Canadian registered charities carrying on activities outside Canada
July 8, 2010 (Revised November 27, 2020)
This guidance updates and replaces the previous version of Guidance CG-002, Canadian registered charities carrying on activities outside Canada.
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.
The Income Tax Act allows a registered charity to operate, both inside and outside Canada, in only two ways:
- carrying on its own charitable activities through its staff or an intermediary
- making gifts to qualified doneesFootnote 1
1.1 Own activities
A charity can carry on its own activities using its staff, including volunteers, directors, and employees, or through an intermediary (for example, a private contractor) acting on its behalf. Whether it uses its own staff or works through an intermediary, a charity must direct and control the use of its resources, although it may delegate the responsibility for day-to-day operating decisions to an intermediary. A charity’s resources include all its physical and financial resources as well as its staff and volunteers.
A charity cannot act as a conduit that merely funnels resources to an organization that is not a qualified donee.
An intermediary is an individual or organization that is a non-qualified donee, that is separate from the charity. The charity works through it to carry on the charity’s own activities.
1.2 Direction and control when using intermediaries
To meet the own activities requirement, when a charity transfers resources to its intermediary, it must direct and control the use of those resources. This means the charity must make decisions and set parameters on significant issues related to the activity, on an ongoing basis, such as:
- how the activity will be carried on
- the overall goals of the activity
- the area or region where the activity will be carried on
- who will benefit from the activity
- what goods and services the charity's money will buy
- when the activity will begin and end
A charity must maintain, as part of its books and records, an account of steps taken to direct and control the use of its resources. The books and records should be sufficiently detailed to allow the Canada Revenue Agency (CRA) to verify that all of the charity's resources have been used for its own activities.
This guidance provides information for charities that further their charitable purposes through activities outside Canada. It explains how these charities can make sure their resources are devoted to charitable activities and that they meet the requirements of the Income Tax Act.
It also provides information on how a charity can work through an intermediary to carry on its charitable activities outside Canada. For information about working through an intermediary to carry on charitable activities within Canada, see Guidance CG-004, Using an intermediary to carry on a charity's activities within Canada.
In this guidance:
- “charity” means a Canadian charity that is registered under the Income Tax Act, and includes both charitable organizations and charitable foundations
- “organization” includes applicants for charitable registration, as well as registered charities
3. Can a charity carry on its activities outside Canada?
A charity can carry on its activities both inside and outside Canada. However, carrying on its activities outside Canada often presents significant challenges and requires substantial ongoing effort.
Before an organization begins carrying on activities outside Canada, the CRA recommends that it consider working with a charity or other qualified donee that has this type of experience. For a list of all Canadian registered charities, go to List of charities.
Global Affairs Canada works in co-operation with a number of voluntary sector organizations. Although a charity may wish to support these organizations, not all of them are qualified donees. Since a charity can make gifts of money or other resources only to registered charities or other qualified donees, a charity must take care in deciding which organization to support and how to provide that support.
For more information on what types of organizations are qualified donees, see Guidance CG-010, Qualified donees.
After a disaster or other emergency, the CRA often receives applications for charitable registration from organizations that want to help those affected. For information on applications for charitable registration to provide immediate disaster or emergency relief, as well as other advice for new applicants, see Appendix A.
4. Public benefit test: What is charitable in Canada and abroad?
The Income Tax Act does not define what is charitable. We rely on the common law (case law or court decisions) to determine when purposes and activities are charitable. One requirement is that a tangible benefit be conferred, directly or indirectly, on the public—this is called the public benefit test. For more information, see Guidance CPS-024, Guidelines for registering a charity: Meeting the public benefit test.
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 charitable when carried on in a different country. For example, it is charitable to increase the effectiveness and efficiency of Canada's armed forces, but it is not charitable to support the armed forces of another country.
Also, a charity's purposes and activities must not be contrary to officially declared and implemented Canadian public policy.Footnote 2
4.1 Do charities have to follow the laws of other countries?
A charity’s purposes and activities must always comply with Canadian charity law, including the Income Tax Act and common law.Footnote 3
A charity that carries on activities outside Canada should be aware that laws in other countries may differ from laws in Canada. While the Income Tax Act does not require charities to comply with laws in foreign jurisdictions, Canadian charities are not exempt from the laws in the jurisdiction where they operate.
Before carrying on their charitable programs abroad, a charity should become aware of local laws, and how they are enforced. This will help the charity make sure the public benefit provided by its activities is not offset by harm to those carrying on the activities, the charity's beneficiaries, or anyone else.
4.2 What if a charity's activity puts people at risk?
If a charity's activity exposes anyone to the risk of harm, it may affect the charity’s registration.
When the CRA looks at whether a charity meets the public benefit test, it considers whether the activities are likely to result in harm to the charity's staff, its beneficiaries, or anyone else. To meet this test, the charity must be able to show a net public benefit, that is, that the potential benefit is greater than any harm that might result.
On a practical level, the CRA recognizes that many situations involve some element of risk. Sometimes it is not possible to predict all outcomes, especially in quickly changing international environments. However, organizations should be able to show an awareness of the risk an activity poses. If they intend to proceed with the activity, they should have a plan to keep risks at an acceptable level.
The facts of every situation are different, and it is not possible to provide a comprehensive guide on managing risk for all activities. To determine if a charity is doing enough to evaluate and manage the relative levels of benefit to risk, the CRA usually looks at these factors:
- the likelihood and nature of harm to anyone delivering the activity, receiving the benefit, or otherwise affected
- the urgency of the need for charitable assistance (for example, will the activity help desperate people in regions affected by a disaster, or in war zones?)
- the charity’s experience operating in situations with significant risk
- the charity's proposed measures to keep risk at an acceptable level
A charity has a purpose to relieve poverty by providing humanitarian relief. It is launching a new activity in a developing country where civil war has broken out and displaced many citizens. They urgently need assistance, which the charity can provide.
The charity has been operating for several years, and its staff has experience working in areas affected by natural disasters. However, this is the first time the charity has considered working in a war zone.
The charity consults experts who are familiar with the security situation and who have experience in the region. The charity also arranges extra training for its staff on how to minimize the risk of harm to themselves and the beneficiaries, and it arranges for guides and interpreters it believes are trustworthy. The charity determines that if it carries on its activities within certain limits, the risk is acceptable and the charity can deliver significant relief to beneficiaries.
Although the charity is taking on risks, it has taken steps to minimize those risks so it can help those most in need.
4.3 How do Canada's anti-terrorism laws apply to charities?
Like all individuals and organizations in Canada, charities are responsible for making sure they do not operate in association with individuals or groups that are engaged in or support terrorist activities.
The CRA has produced a Checklist for charities on avoiding terrorist abuse.
Under the Charities Registration (Security Information) Act and the Income Tax Act, a charity's registration may be revoked if the charity’s operations make 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.
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.
5. Restrictions on how a charity can use its resources
The Income Tax Act allows a charity to operate, both inside and outside Canada, in only two ways:Footnote 4
- carrying out its own charitable activities through its staff or an intermediaryFootnote 5
- making gifts to qualified doneesFootnote 6
For more information on what types of organizations are qualified donees, see Guidance CG-010, Qualified donees.
5.1 What are charitable activities?
An organization’s activities are charitable when they further its charitable purposes. The organization’s purposes (or objects) are the goals or objectives it is created to achieve. These purposes should be stated in the organization’s governing document.Footnote 7
Examples of charitable purposes include relieving poverty by providing housing to the homeless, advancing education by providing scholarships to students, or promoting health by providing medical care to the sick.
For more information, see Guidance CG-019, How to draft purposes for charitable registration.
5.2 Meeting the “own activities” test for charitable registration
The Income Tax Act requires a charity to devote all its resources to charitable activities carried on by the organization itself. This requirement is referred to as the own activities test.Footnote 8
A charity's resources include all its physical and financial resources as well as its staff and volunteers.Footnote 9
A charity can meet the own activities test by carrying on its activities through its staff or through an intermediary. In certain limited circumstances, a transfer of charitable goods can also meet the own activities test.
5.2.1 Carrying on activities through a charity’s staff
A charity can use its own staff, including volunteers, directors, and employees, to carry on its activities. This is the easiest way for a charity to meet the own activities test.
5.2.2 Carrying on activities through an intermediary
A charity can also carry on its activities through an intermediary. An intermediary is an individual or organization that is a non-qualified donee,Footnote 10 that is separate from the charity. The charity works through it to carry on the charity’s own activities.
When a charity works through an intermediary the charity must direct and control the activities conducted on its behalf and the use of the its resources.Footnote 11 For example, a charity might do one of the following:
- hire a company or private contractor
- enter into an agreement with a non-profit organization to have the organization deliver specific charitable programs for the charity
- pool its resources with another organization to complete a project
For more information about using an intermediary, see section 6.
In some limited circumstances, the CRA may consider a charity to be carrying on its own activities when the charity transfers certain resources (not money) to a non-qualified donee.
It is important to note that transfers of money from a charity to a non-qualified donee always require the charity to provide ongoing direction and control of the money.
When the CRA assesses whether a transfer of a charity’s non-monetary resources meets the own activities test, it considers all relevant facts. At a minimum, the transfer must meet these three conditions:
- The resources being transferred can reasonably be used only 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.
- The non-qualified donee that receives the resources understands and agrees to use them only for the specified charitable activities, as documented by the charity.
- After reviewing the status and activities of the non-qualified donee that will receive the resources (including the outcome of any past transfers from the charity), the charity can reasonably expect the non-qualified donee to use the resources for the intended charitable activities.Footnote 12
The charity’s records should show that it reviewed the status and activities of the intermediary. To conduct this review, a charity would typically examine details such as the intermediary's stated goals and purposes, its history and reputation, and relevant media reports.
If a transfer of its resources does not meet the above three conditions, the only way a charity can meet the own activities test is to direct and control the use of the transferred resources.Footnote 13 If a charity does not do so, it risks sanctions under the Income Tax Act, such as financial penalties, or revocation of its registration.
Below are examples of situations that might meet the conditions for transferring resources to a non-qualified donee:
- transfers of books and scientific reports from a Canadian research charity to a reputable foreign library or school
- transfers of food and blankets to a foreign charity that is helping during a natural disaster, and that has a long history of successful operations
- transfers of drugs or medical equipment to a foreign hospital that is poorly equipped but has an excellent record of serving its community
For information on transferring ownership of real property (land and immovable property on land, such as buildings) to a non-qualified donee, see Appendix B.
If a charity transfers resources directly to beneficiaries of its charitable purposes it does not have to direct and control the use of these resources. For example, a charity could give school supplies, such as books or writing instruments, to students experiencing poverty without having to direct and control how the students use those resources.
For information on how charities can direct and control their resources, see section 7.
5.3 What is a gift to a qualified donee?
In addition to carrying on its own activities, a charity can make gifts to qualified donees.Footnote 14
A gift is a transfer of money or other resources without compensation. A qualified donee is defined in the Income Tax Act as an organization that can issue official donation receipts for gifts they receive from individuals and corporations.
Some types of qualified donees include:
- registered Canadian charities
- her Majesty in right of Canada, a province, or a territory
- a registered Canadian municipality
- certain registered universities outside Canada
- the United Nations and its agencies
- registered foreign charities that have received a gift from Her Majesty in right of Canada
For more information, see Guidance CG-010, Qualified donees.
5.4 What is a conduit?
In this guidance, a conduit is a charity that funnels its resources to a non-qualified donee without direction or control. Acting as a conduit contravenes the Income Tax Act, and could jeopardize a charity's registration.Footnote 15
A Canadian registered charity has a purpose to protect the environment. A foreign organization that is not a qualified donee approaches the charity to seek funding for its activity of preserving the rainforest.
The charity approves of the non-qualified donee's activity and agrees to provide funding. The two organizations sign a written agreement, and the non-qualified donee agrees to use the registered charity's money only for the charity’s purpose of protecting the environment.
However, the charity has no say about where, when, or how the activity is carried on. The charity is simply funding the non-qualified donee's activity. Therefore, even though the activity may be charitable, the charity is acting as a conduit.
For information on charities transferring resources to an affiliate located outside Canada, see Appendix C.
6. How can a charity work through an intermediary?
A charity typically works through an intermediary when it is unable to carry on its own activities through its staff. The intermediary usually provides resources that a charity needs, such as particular skills, knowledge of a region, or specialized equipment.
When working through an intermediary, a charity must direct and control the use of its resources.Footnote 16 A charity that does not do so risks sanctions under the Income Tax Act, such as financial penalties, or revocation of its registration.
Before a charity decides to work through an intermediary, and periodically throughout the arrangement, a charity should review the status and activities of the intermediary to make sure it:
- has the capacity (for example, personnel, experience, and equipment) to carry on the charity's activity
- will use the charity's resources as directed by the charity
As part of its review, the charity might examine the intermediary’s stated goals or purposes, research its history and reputation, carry out site visits, and consult with project stakeholders.
Sometimes an intermediary can also be a beneficiary of a charity's programs by building its own capacity. For example, the intermediary might acquire skills and expertise while carrying on the charity’s activity. For more information on this situation, see Appendix D.
6.1 What are common types of intermediaries?
Three common types of intermediaries are described below. However, a charity can make other arrangements to carry on its own activities through an intermediary, as long as the charity directs and controls the use of its resources.
6.1.1 Consultant or contractor
A consultant or contractor intermediary is an individual or organization that carries on specific activities on behalf of a charity. This type of intermediary may be a charity (not a Canadian charity) or a non-profit organization in another country, or it may be a for-profit contractor.
A charity often engages a consultant to act as its intermediary when the charity cannot send its own staff to a region, or it may hire a contractor to provide goods or services. In these situations, a charity usually exercises direction and control through an agreement with the consultant or contractor.
A charity has a purpose to relieve poverty in a developing country. It contacts a foreign non-profit organization that is a non-qualified donee with considerable experience carrying on this type of activity in the country. The non-profit agrees to act as the charity's consultant intermediary to carry on the activity.
The intermediary provides advice to help the charity develop a plan. They both sign a written agreement that sets out the details of the activity and their respective roles and responsibilities. In the agreement, the charity delegates authority to the intermediary to make day-to-day operating decisions, such as hiring local staff and buying supplies. The intermediary provides regular detailed reports on how it is using the charity's resources, which the charity reviews. The charity intervenes as needed to provide ongoing instructions and to make sure the intermediary follows the agreement and the activity is achieving the charity's purpose.
A charity has a purpose to relieve poverty in developing countries. It hires a for-profit contractor to dig a well for people lacking clean drinking water.
The charity and the contractor draft and sign a contract that outlines the terms and conditions of their relationship. The contract is the instrument through which the charity directs and controls the use of its resources to make sure its purpose is achieved. The charity monitors the contractor’s work and maintains records to show the use of its resources on the activity.
6.1.2 Joint venture participant
A joint venture participant is an organization a charity works with to carry on a charitable activity. The charity and one or more joint venture participants pool their resources to accomplish an agreed-upon goal under the terms of a joint venture agreement.
A joint venture participant differs from a consultant or contractor intermediary in that the charity does not rely entirely on the joint venture participant to carry on the charity’s activities. Instead, the charity works with a joint venture participant to conduct the charitable activity.
The structure of a joint venture varies from case to case. However, a charity typically has members that sit on a joint venture governing board for the entire project. This allows the charity to make decisions on how its resources are used.
A charity must be able to show that its share of authority and responsibility over a venture allows the charity to direct and account for how its resources are used. If a charity does not have enough decision-making authority to make sure its resources are used as it directs, it may not be able to show it is carrying on its own activities.
The CRA will look at any venture as a whole to make sure the charity’s resources are used only to further its charitable purposes.
For a list of the factors the CRA looks at when examining joint venture arrangements, see Appendix E.
A charity has a purpose to relieve poverty by helping disadvantaged women. It joins with a foreign organization that is a non-qualified donee with a similar purpose. The two organizations enter into an agreement, and they collaborate to pool their resources to provide basic education and business training to women experiencing poverty.
The charity provides about 40% of the project funding, and it controls about 40% of the voting rights on the venture's governing board. As long as the venture uses the charity's resources only for the agreed upon activities, this arrangement should be acceptable.
However, if the governing board of the venture decides to use the charity's resources for a purpose that is not included in the agreement, the charity must withdraw its resources from the project. Therefore, the agreement should include a provision that allows the charity to stop providing resources to the venture if its resources are not used for the agreed purpose.
6.1.3 Co-operative participants
A co-operative participant is an organization that works side-by-side with a charity to complete a charitable activity. The charity and the other organization(s) each take on responsibility for specific parts of the project only. This is different from a joint venture, where participants pool their resources and share responsibility for the project as a whole.
A charity has a purpose to promote health by providing care for the sick. It works with a foreign organization, which is a non-qualified donee, to build and operate a medical clinic in an isolated area. The charity agrees to provide qualified nursing staff at the clinic, but it will not assist with other parts of the project, such as construction of the building or buying medicine.
7. What is direction and control?
To meet the own activities requirement, when a charity transfers resources to its intermediary, it must direct and control the use of those resources.Footnote 17 This means the charity must make decisions and set parameters on significant issues related to the activity, on an ongoing basis, such as:
- how the activity will be carried on
- the overall goals of the activity
- the area or region where the activity will be carried on
- who will benefit from the activity
- what goods and services the charity's money will buy
- when the activity will begin and end
A charity can accept advice from its intermediaries, and does not have to make every decision involved in the carrying on of an activity. However, it must be able to intervene in any decision.
A charity can delegate the responsibility for day-to-day operational decisions to an intermediary, which is often in a better position to make this type of decision. For example, a charity might delegate the authority to:
- decide which local vendor to buy supplies from
- hire and manage staff
- locate potential beneficiaries for an activity
- maintain buildings owned or operated for the charity's activities
7.1 How should a charity direct and control the use of its resources?
Generally speaking, when a charity chooses the type and the number of direction and control measures it will use, it should consider the nature of the activity, including:
- the amount of resources involved
- the complexity of the activity
- the location of the activity
- the type of resources being transferred
- any previous experience of the charity working with the intermediary
- the capacity and experience of the intermediary
While there may be other ways to show direction and control over the use of a charity’s resources, the CRA recommends that charities use the following measures:
- create a written agreement, and implement its terms
- communicate a clear, complete, and detailed description of the activity to the intermediary
- monitor and supervise the activity, including requiring regular reporting
- provide clear, complete, and detailed instructions to the intermediary on an ongoing basis
- make periodic transfers of resources to the intermediary, based on demonstrated performance
- arrange for the intermediary to either keep the charity’s funds separate, or account for them separately in its books and records
A charity must record all steps taken to exercise direction and control as part of its books and records. This allows the CRA to verify that the charity's resources were used to carry on its own activities.
A charity has a purpose to advance education, and it intends to devote a relatively large sum of money to scholarships for young women in an African country. It finds a newly established foreign organization, which is not a qualified donee, carrying on similar work. The organization agrees to work as the charity's intermediary. The charity reviews the foreign organization, and documents the steps it took to conduct the review.
The charity and the intermediary meet to plan the activity. The charity takes the intermediary's advice and experience into account as they plan the activity, although the charity has final authority over the use of its funds.
The charity adopts measures to make sure it directs and controls the use of its resources, including entering into a written agreement with the intermediary and implementing its terms, monitoring the activity (including requiring regular reports), and providing ongoing instruction.
The facts of every situation will differ, and it is not possible to give precise guidelines to cover all situations in advance. If a charity has questions, it should contact the Charities Directorate for assistance.
7.2 Creating a written agreement
A written agreement is a document that shows the relationship between a charity and its intermediary. An agreement should also give the charity the authority and means to maintain direction and control over the use of its resources, and over its intermediary's actions related to the charity's activities.Footnote 18
The nature of an arrangement with an intermediary can have important implications for a charity. In particular, the charity can be exposed to liability for the acts of the intermediary. This highlights the importance of having a clear agreement (preferably in writing) that sets out the nature of the relationship, including the charity’s expectations and the intermediary’s obligations.
The CRA recommends that a charity enter into a written agreement with intermediaries. Although there is no legal requirement to have a written agreement, and the same result might be achieved by other meansFootnote 19, a properly executed written agreement is an effective way to help the charity meet the own activities test. It also shows a charity’s due diligence about the use of its funds.
However, signing an agreement is not enough by itself to prove that a charity meets the own activities test. The charity must also be able to show through its books and records that it has a real, ongoing, and active relationship with its intermediary.Footnote 20 The CRA recommends that a charity have a system in place to periodically review its written agreements to make sure they stay current.
For a one-time activity, where the amount of resources involved is minor, the CRA acknowledges that the complications of developing a full, formal, written agreement may outweigh the benefits. When a charity spends $5000 or less on a one-time activity, other documents might be enough to show ongoing direction and control over the intermediary’s use of resources. These might include written instructions, email records, meeting minutes, and regular reporting.
A charity has a purpose to relieve poverty, and it decides to support a foreign food bank. It plans to send a one-time transfer of $5,000 to the food bank to buy supplies.
In this situation, the importance of a full, formal, written agreement is reduced. Although a written agreement is helpful, the charity should be in compliance with the Income Tax Act if it can show through other records that it directs and controls the use of its resources.
For example, the charity could keep confirmation of delivery of instructions to the food bank, records of bank transfers, and minutes of meetings and calls that show the decisions made and instructions sent. In turn, the food bank could send receipts, invoices, reports, and photographs to the charity.
If a charity expects to repeat the activity on an ongoing basis, annually for example, the CRA recommends it have a written agreement with the intermediary to make sure that there is a clear understanding of the agreement over its duration.
When applicants for charitable registration intend to carry on activities through an intermediary, it is helpful to include a copy of a written agreement with the application. This helps to show the CRA that the applicant’s relationship with its intermediary can meet registration requirements.
The CRA does not provide a template for written agreements. However, for a list of the information that should be included in a written agreement, see Appendix F.
Some organizations have written agreements in the form of agency agreements with their intermediaries. As long as these agreements show the presence of direction and control over the use of the charity’s resources, as set out in this guidance, they can be acceptable.
7.3 Describing activities
Before starting an activity, the charity and its intermediary should agree on a detailed description of the activity. The charity should include this description in its records. Depending on the nature and complexity of an activity, the description should generally include:
- what the activity involves, its purpose, and the charitable benefit it provides
- who benefits from the activity
- the exact location of the activity
- a detailed budget for the activity, including payment schedules
- the start and end dates, and other relevant timelines
- a description of the deliverables and performance benchmarks
- how the charity monitors the activity and use of its resources (including its regular reporting requirements)
- how the charity can change the nature or scope of the activity, including ending the activity if required (for example, if funds are unaccounted for)
- the plans for any income arising from the activity (for example, tuition fees from operating a school, or sales of goods made by low-income artisans in developing countries)Footnote 21
- any contributions intermediaries are expected to make
7.4 Monitoring and supervising, including regular reporting
Monitoring and supervision is the process of receiving timely and accurate information, including regular reports,Footnote 22 that allows a charity to make sure its resources are being used for its own activities. Depending on the nature and complexity of an activity, the reporting methods can include:
- regular progress reports
- expense receipts and financial statements
- records of communication by telephone, videoconference, or email
- audit reports
- on-site inspections by the charity's staff
A charity has a purpose to protect the environment. It arranges for a foreign organization that is a non-qualified donee to act as an intermediary in carrying on an activity in a rural area of a developing country. The intermediary uses the charity's money to work with local residents in preventing deforestation. It does this by offering training and assistance in collaborating with other communities.
The intermediary sends monthly progress reports to the charity that include a financial breakdown of the resources used, a written description of the activities carried on and their results, and photographs.
When the activity ends, the intermediary presents a written final report describing the project's results. Under these circumstances, the charity will likely be able to show sufficient monitoring and supervision.
7.5 Ongoing instruction
On an ongoing basis, charities should provide intermediaries with instructions that are needed to address issues that arise.
Records of ongoing instructions will help the charity show the CRA that it is carrying on its own charitable activities in accordance with the Income Tax Act. Minutes of meetings, conference calls, telephone calls, or other written records of decisions are ways for the charity to show it has given instructions to its intermediary. The CRA recommends using written instructions such as letters, emails, or faxes to communicate with an intermediary when possible.
A charity has a purpose to relieve poverty by providing clean water to communities in need outside Canada. The charity enters into an agreement with a foreign organization that is a non-qualified donee. The organization agrees to act as the charity's intermediary in establishing a new water supply, providing sanitation facilities, and training community members.
Problems and challenges arise as the project advances. The intermediary solves many technical problems in the field, such as locating sources of water and renting specialized equipment. However, the charity intervenes and provides direction for decisions about the use of its money and other resources. For example, it decides how to respond to a request by the community to use the charity's truck to send people to a rally in support of a local politician running for office.
Charities are prohibited from devoting any resources to supporting or opposing a political party or candidate for public office. Therefore, the charity explains that Canadian law does not allow that use of its resources. It documents the matter and its resolution. For more information, see Guidance CG-027, Public policy dialogue and development activities by charities.
Charities and organizations acting as intermediaries occasionally arrange to have a director, trustee, volunteer, or employee work for both bodies. Although this type of arrangement can make it easier to pass along reports and ongoing instructions, it might not be enough to show that the charity maintains direction and control over the use of its resources.
For example, if a staff member from the charity serves on the board of an intermediary, his or her control over the charity's resources may be limited to one vote among many. The intermediary's board could potentially decide to use the charity's money for activities other than those of the charity, despite the staff member's objections.
7.6 Making periodic transfers
The CRA recommends that charities send resources to their intermediaries in periodic instalments, based on demonstrated performance, rather than in one transfer.
When appropriate, a charity should hold the right to stop the transfer of money and have unused funds returned if it is not satisfied with the activity’s progress or outcome. This will allow the charity to stop funding an activity if the charity's resources are being misused or for another valid reason.
7.7 Separate activities and funds
When carrying on an activity through an intermediary, a charity must make sure it can distinguish its activities from those of the intermediary.Footnote 23 A charity cannot simply pay expenses that an intermediary incurs to carry on the intermediary's own programs and activities.
If an intermediary manages an ongoing activity on the charity’s behalf, the intermediary should keep the funds it receives from the charity separate from its own. This means the intermediary should keep the funds in a separate bank account or it should account for them separately from its other funds in its books and records. The intermediary’s books and records should contain enough detail to ensure the charity’s funds can always be tracked and accounted for.
The intermediary should use the funds it receives from the charity only after the charity authorizes it to do so or the intermediary meets established performance benchmarks.
8. Keeping books and records
Under the Income Tax Act, a charity must keep adequate books and records in Canada. Books and records must contain enough information to allow the CRA to determine if the charity is operating in accordance with the Income Tax Act.Footnote 24 The CRA recommends that books and records be kept in either French or English.Footnote 25
A charity’s books and records must allow the CRA to check whether:
- the charity's funds are being spent on its own activities or on gifts to qualified donees
- the charity is directing and controlling the use of its resources
- revenues, including charitable donations, can be verified
- the charity’s purposes and activities continue to be charitable
A charity that fails to keep adequate books and records risks sanctions under the Income Tax Act, such as suspension of receipting privileges, or revocation of its registration.Footnote 26
When the CRA considers whether a charity’s books and records are adequate, it looks at the risk of non-compliance for the particular activities. The risk level may relate to the location, the activity, or the type of resources.
A lower-risk activity for a charity that has a purpose to advance education by providing books would be to purchase and send accredited high school textbooks to schools overseas. In this situation, adequate books and records might include receipts for the purchase of the textbooks, shipping bills of lading, and signed confirmations from the schools acknowledging receipt of the textbooks.
A higher-risk activity for a charity that has a purpose to relieve poverty by providing funds would be to transfer cash overseas. In this situation, adequate books and records might include:
- agreements between the charity and any intermediaries
- letters and reports showing ongoing communication between the charity and the overseas representatives and intermediaries
- detailed bank records showing funds being transferred to an overseas bank
- financial records for payment of salaries and other expenses, including invoices and receipts
- documents showing that recipients of funds meet defined criteria
- board minutes showing approval of agreements and expenditures
For more information on books and records, including what information to include, go to Books and records.
8.1 Source documents
The CRA recommends that a charity get original source documents, such as receipts for purchases, to document its expenditures. However, it acknowledges this is not always possible or practical. Therefore, the CRA will usually accept photocopied or electronic (scanned) documents, as long as proper imaging practices are followed.
A charity should make all reasonable efforts to get source documents and/or reports and records from staff and intermediaries to support its expenditures. A charity must always be able to verify when, how, and in what amounts funds were transferred.Footnote 27
9. Funding from Global Affairs Canada and other government organizations
Global Affairs Canada and other government organizations fund many activities inside and outside Canada. However, not all projects funded by government are charitable. A charity has to make sure that any activities it carries on under the terms of a funding agreement further its charitable purposes.
If a charity has concerns about whether a Global Affairs Canada-funded project is charitable, it should contact the Charities Directorate for assistance.
10. Meeting the disbursement quota
The disbursement quota is the minimum amount a registered charity must spend each year on its own charitable activities or on gifts to qualified donees.
Generally, all amounts a charity spends directly on carrying on its charitable activities will go towards meeting its disbursement quota, whether the charity carried on the activities in Canada or a foreign country.
When a charity reports its expenditures on Form T3010, Registered Charity Information Return, it must report all amounts spent on its activities outside Canada in the same way it reports amounts spent in Canada. A charity should report all amounts spent on its behalf by its intermediaries as if the charity had spent them itself.
A charity that carries on activities outside Canada must complete Schedule 2, Activities Outside Canada, as part of its Form T3010.
The CRA considers amounts spent on charitable activities to include, but not be limited to:
- transfers of goods and services to provide eligible beneficiaries with charitable relief
- payments for goods and services to provide eligible beneficiaries with charitable relief
- purchase or maintenance of facilities, equipment, and other items used directly in the charity's charitable activities
- fees, licences, and memberships needed to deliver the charity's charitable activities
- salaries paid to those that directly provide charitable relief to eligible beneficiaries
A charity has a purpose to advance education by carrying on research. It takes part in an archaeological dig as a joint venture with a foreign organization that is a non-qualified donee. The charity contributes about $10,000 annually to the project, of which $9,000 is for research and to cover direct expedition costs.
The remaining $1,000 covers administrative costs such as completing pay slips.
The charity can apply $9,000 towards meeting its disbursement quota, and it will record the remaining $1,000 as administrative costs.
For more information on calculating the disbursement quota, see Guide T4033, Completing the Registered Charity Information Return.
Appendix A – Information for applicants that want to carry on disaster, emergency relief or other foreign activities
Disaster or emergency relief
After a disaster or other emergency, such as an earthquake or flood, the CRA often receives charitable registration applications from organizations that want to help those affected as soon as possible.
Because the situation is usually urgent, the CRA typically assigns priority to these files. However, disaster or emergency relief organizations must still meet the same legal requirements as all other applicants before they can be registered. Applicants must therefore be able to show how they will carry on their own activities and direct and control the use of their resources.
Applicants should be aware that after a disaster or other emergency, the affected area can be volatile and dangerous. Local authorities may grant limit access only to well-established and experienced relief organizations. Therefore, it is almost always faster and more effective to support existing charities or other qualified donees that already have the experience, resources, and infrastructure in place to respond. For more information, go to Disaster or emergency relief.
An applicant intending to undertake foreign activities should provide a detailed description of the proposed activities, and match these activities to their available resources. For example, an application from a small organization with a purpose to promote health might propose providing anti-malaria mosquito nets to a village, rather than eradicating malaria throughout the entire country.
Appendix B – Transferring real property to a non-qualified donee in a foreign country
A charity may want to acquire real property (land and immovable property on land, such as buildings) in another country, but find that owning real property there is impossible. Or, a charity might own real property in a foreign country but find that continued ownership is impossible due to a change in circumstances.
In these cases, a charity may want to transfer ownership of the real property to a foreign organization that is not a qualified donee. In most situations, however, a charity is not permitted to transfer 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.
A transfer of real property to a non-qualified donee might be acceptable in the following situations:
- The country where the charity is operating does not permit foreign ownership of real property.
- The real property is transferred only as part of a development project to relieve poverty by helping a community become self-sufficient. A development project is generally one where transferring the real property to a local organization is an essential part of helping an economically disadvantaged community to break free of the cycle of poverty and disease. This may include, for example, projects such as schools and hospitals.
- The charity can show that it made every reasonable effort to gift the real property to another qualified donee and that it also made every reasonable effort to sell the real property for its fair market value, but was not successful.
In any of the three situations above, the charity should get documentation from the non-qualified donee stating that the real property will be used only for charitable purposes. The documentation should also provide reasonable assurances that the property will, for its expected useful life, benefit the whole community. The charity should keep this documentation as part of its books and records.
The charity should also, to the best of its ability, assess the risk that its real property might be used inappropriately. If the risk of inappropriate use is greater than the benefit that may be provided, the charity should not transfer ownership. Before a charity transfers ownership of any real property, and particularly in the case of the third scenario listed above, we recommend contacting the Charities Directorate to discuss available options.
A charity has a purpose to promote health by providing relief from conditions associated with disabilities. The charity enters into a joint venture with a foreign organization that is a non-qualified donee to build and operate a school for those with disabilities in a foreign country.
The charity's review of the foreign organization shows there is a strong expectation that it will use the resources only for the intended activities. However, since the charity wants to pool its money with a non-qualified donee, it must direct and control the use of its resources.
The two organizations meet to discuss and plan the activity. The charity takes the non-qualified donee's experience and advice into account, but it keeps ultimate decision-making authority over the use of its resources.
The two organizations develop a written agreement, which contains measures to direct and control the use of the charity's resources. These measures include a detailed description of the activity, and provision for the charity to monitor and supervise the activity, send instructions, and discontinue funding if its resources are not used as directed.
The charity places some of its staff on site during construction, and afterwards to help operate the school. The charity and the non-qualified donee create a governing body composed of an equal number of members of each organization, which allows the charity to monitor the venture, provide direction, and establish deadlines and other performance benchmarks. The charity has the right to inspect the project at any time upon giving reasonable notice, and it receives regular financial reporting for the venture as a whole.
The country where the program is carried on does not permit foreign organizations to own real property. Although the charity helps build the school, it allows the non-qualified donee to assume full ownership.
In this case, the CRA would likely consider the charity to be directing and controlling the use of its resources, so that it meets the own activities requirement.
Appendix C – What if a charity is affiliated with a non-qualified donee?
Sometimes a charity is the Canadian representative or affiliate of another (usually larger) organization that is a non-qualified donee, often located outside Canada. These non-qualified donees sometimes require payments from their Canadian charity affiliates, in the form of tithes, royalties, memberships, or similar transfers.
The requirements for directing and controlling resources still apply to the charity in these circumstances. In other words, a charity may not simply give money to a non-qualified donee, even if that non-qualified donee is the charity's affiliate.
Although an affiliated non-qualified donee can act as an intermediary for the charity, this arrangement may not be practical, since the nature of their relationship may prevent the charity from exercising direction and control over the use of its resources.
In these cases, the charities must be sure they receive goods and services equivalent in value to the amounts they send to the affiliate. Otherwise, any amounts the charity sends will be considered a gift to a non-qualified donee, which is not allowed under the Income Tax Act.
For example, a large, affiliated non-qualified donee might provide a Canadian charity with any of the following:
- accounting services
- literature for distribution
- use of a name, trademark, or copyright material
The CRA generally accepts that a charity with an affiliate outside Canada benefits from access to useful resources such as policies, communications, and training material. If a charity transfers small amounts to an affiliate and has access to such material, we will not require additional evidence of benefits to the charity.
For these purposes, the CRA usually considers a small amount to be whichever amount is less—$5,000 or 5% of the charity's total expenditures in the year.
Appendix D – Capacity-building activities
For the purposes of this guidance, capacity building is working in partnership with an organization, community, or other group to develop the skills, tools, and resources they need to address their own issues. Capacity-building activities may be charitable if they relieve poverty, advance education, or further another recognized charitable purpose.
A charity can carry on capacity-building activities as long as it continues to meet all requirements of the Income Tax Act. A charity must, among other requirements, make sure its activities further its charitable purposes, direct and control the use of its resources, and not confer more than incidental private benefit. For more information about public and private benefit, see Guidance CPS-024, Guidelines for registering a charity: Meeting the public benefit test.
One of the principles of capacity-building is that long-term solutions rarely result from simply transferring money to a group or community without ongoing support. Under a capacity-building approach, a long-term relationship between a charity and its partner can lead to the partner taking over the program, and the charity withdrawing its resources entirely to leave the project’s successful operation in the hands of the former partner.
In this situation, the line between intermediary and beneficiary may become harder to distinguish. Although this guidance typically assumes an intermediary is a means for a charity to carry on its own activities, in some cases an intermediary may also be a beneficiary of a charity's activities. For example, the intermediary may receive training or operational resources that will enhance the capacity of the intermediary while also delivering the core charitable activity.
Before starting a capacity-building program, charities should make sure that their stated purposes allow them to carry on the charitable activities they anticipate will be needed.
For more information on capacity-building activities, see Guidance CG-014, Community economic development activities and charitable registration.
A charity has purposes to promote health by providing care for the sick and to advance education by providing medical training. It plans to work with a community in a low-income country to improve health care. Instead of bringing in doctors and medical supplies for a limited time and then departing, the charity decides to help the community build its own long-term capacity in the area of health care.
The charity meets with members of the community for a detailed discussion of its needs and current resources. It seeks the community's feedback about the best ways to improve its health care, although ultimately the charity decides how it will use its resources.
The charity provides doctors and nurses for immediate care, but it also helps the community build a clinic and train staff to provide basic health care to the region. The clinic eventually becomes the charity's intermediary, providing aid to the people in the area, and thereby carrying on the charity's activity on its behalf.
The charity transfers medical equipment and supplies to the clinic to use in its capacity as an intermediary. The clinic is also a beneficiary, since the charity provides training for the staff—an activity that furthers the charity's purpose of advancing education.
As the skills and capacity of the clinic staff grow, the charity turns over more of the program's operations. However, as long as the clinic acts as an intermediary, the charity must direct and control the use of its resources.
Appendix E – Guidelines for joint ventures
The CRA looks for certain elements when determining if a charity directs and controls the use of its resources in a joint venture. These elements include:
- inclusion of members of the Canadian charity on the governing body of the joint venture
- presence of the Canadian charity's personnel in the field
- joint control over the hiring and firing of personnel involved in the venture
- joint ownership of foreign assets and real property
- input by the Canadian charity into the venture's start-up and follow-through, including the charity's ability to direct or modify the venture and establish deadlines or other performance benchmarks
- signature of the Canadian charity on loans and contracts arising from the venture
- review and approval of the venture's budget by the Canadian charity, availability of an independent audit of the venture, and the option to discontinue funding when appropriate
- authorship by the Canadian charity of procedures manuals, training guides, and standards of conduct
- on-site identification of the venture as being the work, at least in part, of the Canadian charity
When taking part in a joint venture, the charity should make sure it regularly receives full financial information for the whole venture. It should also have enough documentation to show how its contribution fits into the overall undertaking and how its resources have been devoted to activities that further its own charitable purposes.
Appendix F – What should be included in a written agreement?
A written agreement should include:
- exact legal names and physical addresses of all parties
- a detailed description of the activities to be carried on by the intermediary, and an explanation of how they further the charity's purposes
- the location where the activity will be carried on (for example, physical address, town or city)
- all time frames and deadlines
- a requirement for regular written financial and progress reports to show receipt and disbursement of funds, and progress of the activity
- a statement of the right to inspect the activity, and related books and records, on reasonably short notice
- a provision for funding in instalments based on satisfactory performance (funding includes the transfers of all resources), and for withdrawing or withholding of funds if required
- a provision for issuing ongoing instructions as needed
- a requirement for the charity’s funds to be separated from those of the intermediary, either through separate bank accounts or by accounting for them separately in the intermediary’s books and records
- if any of the charity's resources will be used to acquire, construct, or improve real property, that property title will vest in the name of the charity (see Appendix B for more information)
- for charities working in joint ventures, a provision that the charity be an active partner, with a proportionate degree of direction and control in the venture as a whole, and assurances of the following:
- the charity's resources are devoted only to activities that further its purposes
- the charity maintains and receives financial statements and records for the entire project on a regular basis
- effective date and termination provisions
- signature of all parties and the date
Questions and answers
Q.1 Can a charity have one general intermediary agreement that covers most of the relationship terms, and another one for each particular activity?
A.1 Yes. Neither the Income Tax Act nor the courts have specified the form that written agreements must take. Charities can create two or more separate documents, each serving a different purpose. As long as the charity can provide evidence it meets the own activities requirement, the form of that evidence is less important.
Q.2 Regarding the Federal Court of Appeal decision eBay Canada Ltd. v. Minister of National Revenue, can charities keep their electronic-form books and records on a foreign server?
A.2 No. It is still the CRA's position that charities must keep their electronic and paper-based books and records at an address in Canada.
Q.3 Can a charity use its Global Affairs Canada reporting to satisfy the requirement for evidence of direction and control?
A.3 If a Global Affairs Canada report contains enough evidence that the charity carries on its own activities, the charity can give this report to the CRA in an audit or other investigation.
Q.4 One of my neighbors told my charity about an urgent need for assistance in another country. He says if we raise the funds, he can get the money to the right place. Can my charity hold a fundraiser and give him the money to pass on?
A.4 No. This would mean the charity was handing over its money to give to a third party that is not a qualified donee, without direction, control, or even knowledge of what happened to the money. This would contravene the Income Tax Act.
Even if the third party person or organization is trustworthy and reputable, a charity must be able to show it directs and controls the use of those funds.
Q.5 Can a charity use subcontractor agreements to carry on its activities?
A.5 Neither the Income Tax Act nor common law restricts a charity from using subcontractor agreements. However, in these situations, a charity must still be able to direct and control the use of its resources through its relationship and agreements with the contractor.
Q.6 The CRA's requirement for direction and control makes it difficult for our charity to work with foreign charities. Can the CRA relax this requirement?
A.6 No. The CRA must apply the provisions of the Income Tax Act, including the own activities requirement. The CRA takes the position, supported by the courts, that the law requires a charity to direct and control the use of its resources when working through an intermediary.
However, maintaining direction and control does not mean a charity cannot co-operate or collaborate with a non-qualified donee. For example, a charity can assign day-to-day operational decision-making to its intermediary, since the intermediary typically has the local knowledge and experience that allows it to make the best decisions on how to carry on a charity's activity. A charity can also consult with an intermediary when designing an activity, as long as the charity keeps the final decision-making authority.
Q.7 The guidance emphasizes the importance of written agreements, but it does not state that they are a requirement when working through an intermediary. If written agreements are so important, why does the CRA not simply make having one a requirement?
A.7 Neither the Income Tax Act nor common law requires a charity to have a written agreement, so the CRA has no basis in law to require a charity to have such an agreement.
However, in the CRA's experience, having a complete, detailed, written agreement with any intermediary, and implementing the terms of that agreement, is an excellent way for a charity to show the extent of its direction and control over its resources.
Q.8 Our charity owns real property in a foreign country. We want to give this property to another qualified donee, but are having trouble finding suitable recipients. Can the Charities Directorate help?
A.8 The contact information for all charities and many other qualified donees can be found by using the List of charities on the Government of Canada website. Also, you may want to contact one of the umbrella organizations that support the charitable sector. They communicate regularly with charities across Canada, and may be able to help you find a suitable qualified donee.
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