Research as a charitable activity
April 30, 2009
This document outlines the legal and administrative requirements that a registered charity must fulfil to conduct or fund research as a charitable activity.
The guidance applies to applicant organizations and registered charities (hereinafter referred to simply as charities) one of whose purposes, as set out in their governing documents, is to conduct or fund research in any field. It also applies to charities that have some other charitable purpose, such as the promotion of health, and that conduct research as a way of furthering or achieving that purpose.
To be considered charitable at common law, the research that a charity conducts or funds as a charitable activity must:
- be a way to achieve or further the charity's charitable purpose
- be based on a research subject that has educational value and a research proposal that is capable of being attained through research
- be undertaken in such a way that it might reasonably lead to the discovery or improvement of knowledge
- be conducted primarily for the public benefit and not for self-interest or private commercial consumption
- be disseminated and made publicly available to others who might want to access the information
This document provides information on how the CRA assesses the above requirements.
I. What is the purpose of this guidance?
1. The Canada Revenue Agency (CRA) registers charities in accordance with the Income Tax Act and ensures that, once they are registered, charities continue to fulfil the requirements of charitable registration under the Act. This document outlines the CRA's position on the legal and administrative requirements that a registered charity is expected to fulfil to conduct or fund research as a charitable activity. The guidance is intended to be a useful reference point for:
- applicant organizations
- charities seeking to maintain registration
- CRA officials reviewing applications and auditing operations
- the general public
2. For the purposes of this document, research in the charitable sense can be defined as the systematic investigation into and study of materials and sources on any subject that has educational valueFootnote 1 in order to discoverFootnote 2 or improve knowledge.Footnote 3 Moreover, to be considered charitable, the research results must be disseminated and made widely available to others who might want to access them.Footnote 4
3. This guidance applies to applicant organizations and registered charities (hereinafter referred to simply as charities) whose purposes, as set out in their governing documents, include conducting or funding research in any field. It also applies to charities that have some other charitable purpose, such as the promotion of health, and that conduct research as a way of furthering or achieving that purpose.
4. This guidance is based on general principles of charity law and the criteria established in the jurisprudence dealing with charitable research.
II. What are the general requirements for attaining and maintaining charitable registration?
5. To benefit from the special tax privileges given to charities under the Income Tax Act—the most significant being the ability to issue tax receipts to donorsFootnote 5 —charities must first register with the CRA. To be registered, a charity must meet the requirements of the Act, which include that it be charitable at law and devote its resources to charitable purposes and activities.
6. Under common law, an organization will be deemed charitable only if it meets the following two fundamental requirements:
- its purposes are exclusively and legally charitable
- it is established for the benefit of the public or a sufficient segment of the publicFootnote 6
7. An organization's purposes are considered legally charitable only if they fall within one of the following four categories (known as the Pemsel categories):Footnote 7
- purposes for the relief of poverty
- purposes for the advancement of education
- purposes for the advancement of religion
- other purposes beneficial to the community in a way the law regards as charitableFootnote 8
8. Within the public benefit requirement, outlined in paragraph 6.b. above, there are several sub-requirements, which are discussed in detail in Policy statement CPS-024, Guidelines for registering a charity: Meeting the public benefit test.
9. The courts have recognized that research can further a charitable purpose under the second and fourth Pemsel categories (the advancement of education and other purposes beneficial to the community in a way the law regards as charitable), as long as the research is undertaken in such a way that it might reasonably lead to the discovery (see Footnote 2) or improvement of available knowledge (see Footnote 3). Therefore, an organization that is established solely to conduct or fund such research may be registered as a charity, provided the research fulfils all the requirements in paragraph 11 below. For example, it is charitable to engage in research on the works of a particular author.Footnote 9
10. Research can also be conducted or funded as a means, or an activity, that is capable of furtheringFootnote 10 another purpose that is charitable at law, provided it too fulfils the requirements in paragraph 11. For example, a charity that is established to relieve poverty by providing food to the poor might further such a charitable purpose by researching where people with low income reside so it can determine a new location for a food bank.
III. What is the common law meaning of research as a charitable activity?
11. To be considered charitable at common law, the research that a charity conducts or funds as a charitable activity must:
- represent a way to achieve or further the charity's charitable purpose (see Footnote 10)
- be based on a subject that has educational value and a research proposal that is capable of being attained through research (see Footnote 1)
- be conducted in such a way that it might reasonably lead to the discovery (see Footnote 2) or improvement of knowledge (see Footnote 3)
- be conducted primarily for the public benefit that could arise from it and not for self-interest (see Footnote 4) or for private commercial consumption Footnote 11
- be disseminated and made publicly available to others who might want to access the information (see Footnote 4)
12. Sections V to VIII of this document identify the criteria that the CRA will apply when determining whether the research that a charity conducts or funds satisfies the legal requirements of "charitable research" as listed above.
13. If an activity does not fulfil all of the requirements listed above, it is unlikely to be research in the charitable sense. However, depending on an organization's particular charitable purpose and the facts of the situation, it may still be possible for the charity to demonstrate that the activity represents a way to achieve or further a charitable purpose, in which case it may be acceptable. The Charities Directorate is willing to offer its opinion if there is any uncertainty about an activity.
IV. What kinds of research activities are not regarded as research in the charitable sense?
14. Any research that does not directly further a charitable purpose, or the delivery of a charitable program, would not constitute research in the charitable sense. This might include research that concerns the internal deployment of a charity's administrative, management, or fundraising resources. Such research is not research in the charitable sense because it is conducted for a charity's internal purposes rather than to directly further a charitable purpose.
For example, if a charity with a charitable research purpose researches the donation patterns of its donors to increase the amount of funds that it raises annually, the study would not be viewed as charitable research. Although this accumulation of informationFootnote 12 might lead to an increase in the funds at the charity's disposal and therefore might indirectly advance its charitable research purpose, it would not itself further such a purpose. A charity can engage in such a study, but the expenses should be reported as fundraising expenses and would therefore be subject to the guidance on fundraising.
Similarly, research to determine the most effective methods for recruiting new employees to work at a charity would not be considered research in the charitable sense because the results would only further the charitable purposes indirectly. These expenses should be reported as administration on the annual Form T3010, Registered Charity Information Return (for more information, see Guide T4033, Completing the Registered Charity Information Return).
15. The CRA recognizes that some types of research might serve dual purposes. Research might, for example, investigate a charitable program issue as well as an issue connected to a fundraising matter or a question related to the overall management and administration of a charity. In such cases, the charity is expected to make reasonable and consistent decisions about reporting the portion of expenditures devoted to administrative issues and program delivery issues when completing its annual Form T3010, Registered Charity Information Return (for more information, see Guide T4033, Completing the Registered Charity Information Return.)
16. Furthermore, if a charity undertakes a particular research project as a means of generating income, this activity might be considered to be a related or an unrelated business activity. For more information on this topic, see Policy statement CPS-019, What is a related business?
17. Research in the charitable sense does not include the accumulation of information:
V. How does the CRA determine whether research is likely to achieve or further a charity's charitable purpose?
18. To be considered charitable, any research that a charity funds or conducts must be capable of furthering or achieving its formal charitable purpose, as set out in its governing documents (see Footnote 10).
19. If a charity has a research purpose, the CRA assumes that engaging in research activities might achieve or further that purpose. However, if a charity does not have a formal research purpose, the CRA determines whether an activity might further or achieve its charitable purpose by assessing whether the proposed research is connected to that purpose.
For example, a charity that is established to relieve poverty by providing accommodation to the homeless might conduct research to determine whether a recent rise in the number of single-parent families seeking such accommodation is likely to continue so it can forecast future demand for the charity's services. However, if the same charity undertook research into the causes of global warming, this research would not relate to the charity's purpose, as the subject is not connected to the relief of poverty.Footnote 15 In these circumstances, the charity would be advised to restrict research activities to those that further its charitable purposes (see Footnote 10). Alternatively, the charity could also consider amending its charitable purposes to authorize such research.
VI. How does the CRA assess whether a research subject has educational value and a research proposal might reasonably lead to the discovery or improvement of knowledge?
20. When reviewing an application for registration or conducting an audit, the CRA has to consider whether a research proposal is capable of being attained through researchFootnote 16 and whether the subject of the research is likely to add educational value to the store of human knowledge (see Footnote 1). Should the CRA have concerns in this regard, the charity may be asked to provide a literature review or an expert opinion.Footnote 17
Providing an expert opinion is not conclusive evidence that the research in question is likely to satisfy the above requirements. Although any expert opinion a charity provides to substantiate its claims will be fully considered, when the CRA's in-house knowledge is insufficient it may also obtain its own expert opinion to verify the claims.
21. The CRA may also request evidence that the researcher has the training or experience necessary to carry out the research, such as the researcher's qualifications, employment experience, or record of published work.Footnote 18
22. If the information regarding the researcher's ability to conduct the research does not alleviate the CRA's concerns about the proposed research, it may ask for further support. For example, the charity may be asked to provide an expert opinion on whether or not the research methodology (for example, case study, scientific experiment, literature review, database research, survey, focus group, etc.), analysis, structure, and evaluation techniques proposed are likely to generate the data needed to produce the desired outcome and, therefore, might reasonably lead to the discovery or improvement of knowledge.
23. Also, a charity that funds or conducts research as a charitable activity has to assess the quality of the research results.Footnote 19 For example, a charity might evaluate its research results by assessing whether:
- the methodology used to analyze the data was appropriate for the stated objectives of the project
- the data and analysis present a well-reasoned position and substantiate all of the conclusions and recommendations
24. Charitable research must be reasonably unbiased. A charity that is able to demonstrate the quality of the results will also probably be able to show that the research is reasonably objective or reasonably free of bias and therefore not "propagandist".Footnote 20
25. Research in the charitable sense may, however, be based on reasonable assumptions and still be unbiased. For example, most objective and informed people today would agree that eliminating racism is beneficial to the public. A charity could therefore base its research on the premise that tolerance is preferable to racism and explore ways of combating or reducing racism. However, as noted in section IV, if research is unreasonably biased or promotes a predetermined point of view, it cannot qualify as a charitable research activity.Footnote 21
26. The more controversial a research subject is, the more the CRA will expect a charity to take care in ensuring that its research results constitute a well-reasoned position. For example, in England, a trust called the Project on Disarmament (Prodem) was established for the "advancement of the education of the public in the subject of militarism and disarmament" by "all charitable means." This included the promotion, improvement, and development for the public benefit of research into this subject and the publication of the useful results of such research. The Prodem trust failed to establish it was charitable because of its biased approach to its work. The focus of the trust was stated to be "the new militarism," described as an "undue prevalence of warlike values and ideas which manifests itself in proposals for excessive military forces, judged by any conceivable threat, and a level of military expenditure beyond the requirements for defence." The court of first instance held, "a trust described as 'educational' may be disqualified, if the subject matter is not of sufficiently educational value or the purpose is predominantly political or propagandist in character."Footnote 22 The court held that Prodem's purpose was not limited to educating the public in the peaceful means of dispute resolution. Rather, it considered the term "militarism" to be intended to define the current policies of the Western governments and the purpose of Prodem to be specifically to challenge those policies, which were not charitable purposes. The Court of Appeal affirmed the reasoning of the court of first instance by holding:
"I would have no difficulty in accepting the proposition that it promotes public benefit for the public to be educated in the differing means of securing a state of peace and avoiding a state of war. The difficulty comes at the next stage. There are differing views as to how best to secure peace and avoid war. To give two obvious examples: on the one hand it can be contended that war is best avoided by 'bargaining through strength'; on the other hand it can be argued, with equal passion, that peace is best secured by disarmament, if necessary by unilateral disarmament. The court is in no position to determine that promotion of the one view rather than the other is for the public benefit. Not only does the court have no material on which to make that choice; to attempt to do so would usurp the role of government. So the court cannot recognize as charitable a trust to educate the public to an acceptance that peace is best secured by 'demilitarisation' in the sense in which that concept is used in the Prodem background paper and briefing documents."Footnote 23
The Court of Appeal held that, as it was clear from the background paper and the briefing papers that Prodem's object was not to educate the public in the differing means of securing a state of peace and avoiding a state of war but rather to educate the public to an acceptance that peace is best secured by demilitarization, the trust could not be regarded as charitable, as "the court cannot determine whether or not it promotes the public benefit for the public to be educated to an acceptance that peace is best secured by 'demilitarisation'."Footnote 24
27. If the CRA questions the quality of the charitable research, a charity could show that it has assessed the quality of any results obtained by, for example, ensuring the results are reviewed by an expert in the methodology or research field or by an expert peer group. For example, if a journal agrees to publish the research, and this journal verifies through a peer review process the quality of any research it accepts for publication, this would tend to show that the results are of a good quality.
VII. How does the CRA assess whether research provides a public benefit?
VII.A. Ethical considerations
28. The CRA expects any charity conducting or funding charitable research that involves human subjects to assess, at the outset, whether any ethical questions might arise. Assessing and mitigating the risk of harm that a study might cause to human subjects is important because, if this is not done, the CRA might conclude that the research is incapable of satisfying the public benefit requirement. As mentioned above in paragraph 6.b., the public benefit requirement is one of the two fundamental legal requirements of charity at common law.Footnote 25 Research that has no public benefit cannot be considered charitable. Consequently, the CRA might ask an applicant for registration as a charity under the Act that intends to undertake research involving human subjects how it intends to assess and mitigate the risk of harm to those subjects. Alternatively, if a charity funds such research and does not make it a requirement in the funding agreement that the researcher assess the ethical implications of that research at the outset, the charity risks having the CRA find that the research is not charitable.
29. The ethical principles and the articles of the Tri-council policy statement: Ethical Conduct for Research Involving HumansFootnote 26 convey the standard for ethical conduct the CRA expects to be in place when a charity conducts or funds research involving humans as a charitable activity.
VII.B. Dissemination and accessibility requirements
VII.B.i. Charities with an educational research purpose
30. Charities with an educational research purpose strive to advance learning or public knowledge through the discovery or improvement of knowledge. These charities must disseminate their research findings by putting them into the public realm and making the research widely available to anyone who might want to access it (see Footnote 19).
31. The CRA expects an educational charity to disseminate its research as soon as reasonably possible after the research is finished. If the dissemination is delayed, the CRA might ask the charity to explain why. If a charity is unable to reasonably justify the delay in dissemination, the CRA will consider the facts and determine whether it is still possible to view the research as charitable.
32. Dissemination and accessibility can take many forms. A charity might publish the results in a journal, submit the research to an online database of publications, write an article for a newspaper, produce a book, create a paper for a conference, or simply post the research on its external website.Footnote 27 The way the research is disseminated should be influenced by the following criteria:
- the charity's reasonable assessment of the educational value of the work
- the need to reach a relevant audience
- the extent to which the charity considers that the relevant audience will be interested in it (see footnote 9)
33. The disseminated results of research do not have to be made available to the public free of charge. However, the cost should not be so high that it restricts access to the benefits of the research. The CRA will consider whether the cost is reasonable in the circumstances. The cost should be aimed at cost-recovery for publishing or making the research widely known. As a general rule, the cost should allow most people to have access to the research.Footnote 28
34. Some forms of media that a charity chooses to disseminate the results of its research, for example, the radio or television, may ensure the research is disseminated to a broad audience but place restrictions on the space or time available to convey the results. In such circumstances, the charity should ensure that it indicates in the medium selected how interested parties can access the complete results (that is, the charity's telephone number, mailing address, and/or Internet address should be provided).
35. If the research subject is obscure, or highly technical, and therefore likely to be of interest to few people, a charity might satisfy the dissemination and accessibility requirement by simply allowing public access to it (see Footnote 9). For example, the charity could record the research title in its publicly accessible catalogue or website and allow interested parties to access it. Similarly, if the area of research happens to have a public register, a charity should try to record its research in that register.Footnote 29
36. If the charitable research a charity undertakes or funds produces inconclusive results, the charity is not expected to actively disseminate the research. As long as the research fulfils the other legal requirements of charitable research, the CRA will consider it to be charitable. However, as research that yields inconclusive results might be useful to those contemplating a study in the same area or using the same method of research, a charity should take reasonable steps to make the results available to interested parties. For example, the charity could record the research title in an internal (publicly accessible) catalogue, archive the research, and make it publicly available for review upon request.Footnote 30
VII.B.ii. Charities with other charitable purposes
37. Charities that conduct research as a way of furthering a non-educational research purpose, for example, the promotion of health by alleviating human suffering from colon cancer, are not required by law to disseminate and make publicly available the results of the charitable research. The charity has to decide how the charitable purpose it was established to further is better served, which may include dissemination and public access. However, it is also possible that the charity might decide that its charitable purpose is better served if it uses the research in some other way. For example, a health charity may decide that using its research to create a medical treatment or instrument for a disease, and marketing that research at a price those sufferers of that disease can afford, directly furthers its charitable purpose. Alternatively, the charity might decide that pooling the knowledge it has discovered with other specialists is the best way to develop a treatment, thereby furthering its charitable purposes.
VIII. What happens if charitable research confers a private benefit?
38. At common law, a charity cannot be established to confer private benefit. However, some private benefit may occur when a charity pursues activities that further its charitable purpose. Such private benefit is acceptable as long as it arises directly through the pursuit of the charity's purpose, and as long as it is incidental to the achievement of that purpose.Footnote 31 Additionally, private benefit must be reasonable in all circumstances. This means that private benefit must be inevitable and necessary for the charity to further or achieve its charitable purpose.Footnote 32 Furthermore, private benefit must not amount to a non-charitable collateral purpose, such as the promotion of a business.Footnote 33 For example, a charity can be set up to publish and sell law reports to the public.Footnote 34 Although lawyers will benefit from having access to these reports, publishing reliable court decisions is also charitable for the public benefit. It is an inevitable and indeed necessary step in achieving that public benefit to have lawyers supplied with some of the tools of their trade; the public benefit could not be achieved otherwise.Footnote 35 There is a sufficiently close connection between the reasonable private benefit lawyers enjoy and the achievement of the charitable purpose. Moreover, that private benefit is a necessary step in achieving the public benefit.
39. If the research activities that a registered charity conducts or funds as a charitable activity confer a private benefit that is not incidental, reasonable, inevitable, and necessary to achieve the public benefit provided by its charitable purpose, its charitable registration may be revoked.
40. Issues regarding private benefit in the research context generally arise when a charity decides to exploit the intellectual property rights that arise from its charitable research. Research is a charitable activity when any decisions regarding the protection and use of intellectual property arising from research results are made with the charitable purpose and its associated public benefit as the primary consideration.
IX. How can research results be communicated when the communications include public policy dialogue and development activities?
41. Charitable activities include public policy dialogue and development activities (PPDDA) that further a charitable purpose. PPDDAs generally involve seeking to influence the laws, policies, or decisions of a government, whether in Canada or abroad. The Income Tax Act permits a charity to carry on PPDDAs that support its stated charitable purposes. Therefore, a charity may communicate its research results through PPDDAs if they support its stated charitable research purpose. For more information, see Guidance CG-027, Public policy dialogue and development activities by charities.
Appendix 1 - Definitions
Disbursement quota - The disbursement quota is the minimum amount that a registered charity must spend on charitable activities, including gifts to qualified donees, to keep its registered status. In general, it is an expenditure test based on tax-receipted revenue of the previous fiscal period. In the case of foundations and some charitable organizations, certain investment assets and gifts from other registered charities must also be considered. The purpose of the disbursement quota is to ensure that registered charities actively use their tax-assisted donations to help others according to their charitable purposes.
Expert - For the purposes of this document, an expert is someone that is competent to give an opinion because of his or her academic qualifications, work experience, or record of published work relevant to the particular method or field of research he or she is asked to review. Furthermore, the publications cited to establish his or her credentials should have a system in place to verify the quality of any research it accepts before it is published (that is, through peer review or expert opinion from reviewers suitably qualified or experienced in the area). In addition, the expert should be independent, that is, able to speak objectively about the research and have no material interest or family connection with either the organization with the charitable purpose that is either funding or undertaking the research or any commercial sponsor of the research.
Fund - The Income Tax Act permits a registered charity to carry out its charitable purposes in only two ways. It can make a gift to other organizations that are on the list of qualified donees as set out in the Act or it can carry on its own charitable activities, which implies that the charity is an active and controlling participant in a program or project that directly achieves a charitable purpose. This is known as the "own activities" test.
In light of this, when the term "fund" is used in this guidance, it is restricted to those instances where an organization either makes a gift to a qualified donee or meets the "own activities" test by, for example, contracting with a research entity to conduct research on its behalf, thereby ensuring that it retains direction and control over the use of its resources.
Governing documents: Every registered charity must be legally established by a governing document. These are the documents that formally establish an organization and govern its operations. Some examples of governing documents are letters patent, certificates of incorporation, memoranda or articles of association, constitutions, and trust documents.
Purpose: In this document, any reference to charitable purpose means the formal legal purpose or object of a charity as stated in its governing documents.
Qualified Donee: Qualified donees are organizations that can, under the Income Tax Act, issue official tax receipts for gifts that individuals or corporations make to them. Qualified donees include the following:
- registered charities
- registered Canadian amateur athletic associations
- registered national arts service organizations
- housing corporations in Canada constituted exclusively to provide low-cost housing for the aged
- the United Nations and its agencies
- universities outside Canada with a student body that ordinarily includes students from Canada (these universities are listed in Schedule VIII of the Income Tax Regulations)
- charitable organizations outside Canada to which Her Majesty in right of Canada (the federal government or its agents) has made a gift during the registered charity's fiscal period or in the 12 months immediately preceding the period
- municipalities in Canada
- Her Majesty in right of Canada, a province, or a territory (the federal government, a provincial or territorial government, or their agents)
- as of May 8, 2000, municipal or public bodies performing a function of government in Canada
Well-reasoned position - A position based on factual information that is methodically, objectively, fully, and fairly analyzed. In addition, a well-reasoned position should present/address serious arguments and relevant facts to the contrary.
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