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The CRA’s “How to Guide” for Charities Making Grants to Non-Qualified Donees

Torkin Manes LegalPoint

As we reported at the end of last year, on December 19, 2023, the Canada Revenue Agency (“CRA”) published the long-awaited new Guidance, “Registered charities making grants to non-qualified donees” (“Guidance”), replacing the initial draft issued on November 30, 2022. The Guidance addresses how Canadian registered charities (“charities”) can make grants to organizations, within or outside Canada, which are not themselves Canadian registered charities (“non-qualified donees”).


By way of background, the Income Tax Act (Canada) (“ITA”) contains the rules regarding how charities can use their resources to fulfil their charitable purposes. The ITA was amended in June of 2022 to add a new way for charities to do so, namely, by making grants to non-qualified donees. As a result of these amendments, charities can now use their resources, both cash and non-cash, in the following ways:

  1. To carry on their own charitable activities directly through their own staff and volunteers
  2. To carry on their own charitable activities indirectly by working with intermediaries over which the charities maintain direction and control
  3. To make qualifying disbursements in the form of gifts to qualified donees
  4. To make qualifying disbursements in the form of grants to non-qualified donees

The Guidance outlines the parameters of how the CRA interprets the requirements of the ITA in relation to grants to non-qualified donees.

Guidance Highlights

  1. Furtherance of Charitable Purpose: The ITA provides that a qualifying disbursement to a non-qualified donee must be “in furtherance of a charitable purpose” of the granting charity. The CRA interprets this requirement as meaning that an activity funded by a grant to a non-qualified donee must fall within the granting charity’s purposes, and not any other purpose even if that other purpose is charitable. A charity’s purposes are those set out in its governance documents (that is, its articles, letters patent, trust deed or constitution).
  2. Purpose Limitation: The Guidance explicitly states that charities with the sole purpose of making gifts to charities or other qualified donees are not permitted to make grants to non-qualified donees.
  3. Prohibition on Directed Gifts: A charity cannot act as a conduit and must retain authority over how its resources are utilized. As such, a charity cannot accept a gift from a donor who directs that the gift be granted to a non-qualified donee. Such a gift is referred to as a directed gift. Instead, a charity can accept a donation for a specific purpose or activity of the charity and use that donation to make a grant to a non-qualified donee to carry out the funded purpose or activity.
  4. Exclusively Applied & Risk Analysis: The ITA requires a granting charity to ensure that a disbursement to a non-qualified donee is “exclusively applied to charitable activities in furtherance of” one of the granting charity’s charitable purposes. The CRA recognizes that a granting charity may not be able to definitively ensure that its grant to a non-qualified donee is used precisely as stipulated by the charity. However, the CRA recommends in the Guidance that a granting charity undertake due diligence on each grant to a non-qualified donee, utilizing the enumerated accountability tools. The due diligence recommended in the Guidance for a specific grant is dependent upon whether the level of risk of a grant is low, medium or high. A grant of up to $5,000 is considered low value, a grant of more than that amount and up to $50,000 is noted as moderate value and a grant over $50,000 is deemed high value. The level of due diligence increases with the value of a grant. Other factors to consider when assessing the risk level of a grant include the experience of the granting charity and of the grant recipient, the purposes and governance structure of the grant recipient, where the grant activity will take place, the amount and duration of the grant, and whether there are any concerns that the grant will confer a private benefit. The accountability tools contained in the Guidance include (i) researching and reviewing a potential grant recipient, as well as documenting the process, (ii) entering into a written agreement with a grant recipient, which contains such matters as the terms of the grant, a detailed description of the grant activity, how the grant fulfils the granting charity’s charitable purposes, and the outcome anticipated from the grant, and (iii) the reporting requirements expected of the recipient of the grant.
  5. Accountability vs. Direction and Control: The Guidance compares the rules relating to grants (which are referred to as the accountability requirements) and the requirement for a charity to maintain direction and control over its own activities when working with an intermediary. Some similarities are noted such as ensuring that the activity funded furthers the charity’s charitable purposes and that detailed books and records are kept. The fundamental difference between the two regimes is that grants fund the activities of a recipient non-qualified donee, not those of the granting charity as is the case when a charity works through an intermediary. When providing grants, a charity must undertake significant due diligence efforts to ensure that the recipient non-qualified donee can further the granting charity’s charitable purposes through the recipient’s own activities and can abide by the terms of the grant. The CRA notes that charities may incur substantial costs to administer and manage granted funds and recognizes this financial cost as a non-negotiable byproduct of enabling such grants. When making a grant, charities will need to consider the administrative resources and expenses required to undertake the suggested due diligence for grants as it may be disproportionate to the amount of the grant itself.
  6. Compliance with Laws: A charity can make grants to non-qualified donees in Canada and abroad; however, when doing so, a charity should ensure that it complies with Canadian law and public policy, as well as any applicable local laws in the jurisdiction of the recipient non-qualified donees.
  7. Documentation: The ITA requires a granting charity to maintain “documentation sufficient to demonstrate” the purpose of the disbursement to a non-qualified donee and that the recipient non-qualified donee applies the grant exclusively for charitable activities that further a charitable purpose of the granting charity.
  8. “Grant” vs.Gift: The Guidance refers to disbursements to non-qualified donees as “grants” and the recipients as “grantees”. Disbursements to qualified donees are referred to as “gifts” in the Guidance. This terminology could be confusing to charities that make grants to qualified donees, which are to be reported as gifts in Form T1236, Qualified donees worksheet filed with the annual Form T3010, Registered Charity Information Return (“Form T3010”). New Form T1441, Qualifying Disbursements: Grants to Non-Qualified Donees (Grantees) (“Form T1441”) is to be used to report grants to non-qualified donees. Care must be exercised when completing the forms that accompany Form T3010 to ensure that grants and gifts are reported properly.
  9. Reporting on Grants: There is no limit on the dollar amount or percentage of a charity’s income that may be granted to non-qualified donees, but all grants must be reported to the CRA annually. The grants to be reported on Form T1441 are (i) individual grants of more than $5,000, and (ii) two or more grants to the same grantee that combined exceed $5,000, each of which must be reported separately. The information required to be included in Form T1441 for each reportable grant includes the name of the recipient non-qualified donee, the purpose of the grant, the amount granted to the non-qualified donee in the taxation year, and the location of the grant activity if outside Canada. All other grants to non-qualified donees (being those that are not required to be reported on Form T1441) are to be pooled and reported as one amount on the Form T3010, and do not require the same disclosure information as larger grants or combinations of grants to a grantee. In the case of non-cash grants (for example, medical supplies), a charity must determine their fair market value for reporting purposes. The Form T3010 has been replaced as of December 31, 2023 to include the new reporting requirements for grants to non-qualified donees.
  10. Recommendations, Not Law: The Guidance contains the recommendations of the CRA for complying with the new rules, which were added to the ITA in June of 2022, but is not itself law. As such, it is not mandatory for a charity to follow the CRA’s granting recommendations in the Guidance (other than the annual filing requirements for grants to non-qualified donees), but it must still satisfy the accountability requirements set out in the ITA. Whichever measures a charity uses to account for its grants should be adequately reflected in its books and records. Failure to meet the accountability requirements or to properly document how a charity meets them could have negative implications for its charitable registration in the event of an audit, including the potential for sanctions or revocation of charitable status.

If you are unsure if your charity can avail itself of the qualifying disbursement rules or if you have any other questions about the Guidance, a member of our Not-for-Profit & Charities Group would be happy to assist.