Registered charities making grants to non-qualified donees

17. Under the Income Tax Act, a charity continues to be able to carry on activities using an “intermediary”, provided the charity exercises “direction and control” over the activities. For more information about working through an intermediary to carry on charitable activities, see:

• Guidance CG-002, Canadian registered charities carrying on activities outside Canada
• Guidance CG-004, Using an intermediary to carry on a charity's activities within Canada

18. A charity can also operate by making a qualifying disbursement through either a gift to a qualified donee or a grant to a grantee. A qualifying disbursement includes both cash and non-cash resources.

19. Below are some similarities and differences between the accountability requirements and direction and control rules.

20. We recognize that a charity’s relationship with a non-qualified donee may evolve, and the charity can convert its relationship with the non-qualified donee. For example, the relationship can change from intermediary to grantee, or from grantee to intermediary. The charity must meet all accountability and direction and control requirements at the time of the change, and should document this change in its books and records.

42. Learning about a grantee before giving them a grant helps a charity ensure the resources will be exclusively applied to charitable activities in furtherance of the charity’s charitable purposes, as required by the Income Tax Act.

43. As part of the review, a charity should assess and document information about the grantee. This could include:

• purposes and mission
• programs
• history
• reputation
• staff
• associated individuals or entities
• experience and capacity to carry on the grant activity (for example, personnel and equipment)
• potential use of the charity's resources

44. The review can take many forms, such as:

• independent research
• in-person visits
• virtual meetings
• requesting information from the grantee, such as governance documents and website links related to the grant activities
• reviewing the outcome of past grants
• letter of reference or support

45. We recommend that a charity review every grantee. However, if the charity has already formed a successful working relationship with the grantee, the review can be limited.

46. There may be reasons why it is not feasible to conduct an extensive review at the outset. For example, in an emergency relief situation, a charity may not have time to conduct a significant review. Or, if the grantee is a newer organization, it may not be possible for the charity to review the grantee’s experience and reputation. In cases like these, the charity should follow up on this review after it obtains additional information about the grantee. The charity could also work with another registered charity with experience in this area or carry on its own activities through an intermediary by exercising direction and control.^{Footnote 21}

47. If concerns about the grantee arise, a charity could document the way it will address them in its books and records. The charity should resolve any concerns before making a grant to the grantee.

48. Reviewing and documenting the grant activity with the grantee helps to meet the accountability requirements. Creating a detailed description allows the charity and grantee to collaborate and agree on a shared understanding of the grant’s purpose and terms. Including this description in a written agreement provides documentation to refer back to.

49. Here is some information to consider when drafting a description:

• accountability tools to satisfy the accountability requirements
• charitable activity and the charitable purpose it furthers
• deliverables and performance objectives
• location of grant activities
• partners, contractors, and third parties the grantee intends to use to carry on the grant activity
• public benefit, and ways to address any unacceptable private benefit
• start and end dates, and other relevant timelines

50. Working through these and other considerations with the grantee helps a charity further identify the due diligence needed.

51. A charity can also meet the accountability requirements by formally settling on the grant’s terms and conditions with the grantee.

52. Creating a written agreement:

• clarifies expectations, including roles and responsibilities
• confirms the grant terms and conditions
• documents the grant, including its charitable purpose and budget
• keeps grant arrangements on track

53. The Income Tax Act requires a charity to maintain grant documentation, including documenting the grant’s purpose. For this reason, we recommend that the charity enter into a written agreement for most grants.

54. A written agreement may not be necessary for non-recurring grants of $5,000 or less. Other documentation may be enough to satisfy the requirements in very low-risk circumstances. This documentation could include written communications, such as email records and meeting minutes.

55. If a charity expects to make ongoing grants of $5,000 or less to a grantee, annually for example, we recommend the charity have a written agreement with the grantee.

56. When an applicant for charitable registration intends to make grants, it should include with its application a copy of any existing written agreements and a template for future written agreements. This helps us to assess whether the applicant can satisfy the accountability requirements.

57. We recommend that a charity have a system in place to periodically review its granting practices, including the written agreements, to make sure they stay current.

58. We do not provide a template for written agreements. Here is a list of the information that could be included in a grant agreement, depending on the nature and circumstances of the grant:

• a provision that clearly indicates the charity intends to make a grant (as opposed to carrying on its own activities through an intermediary)
• start and end dates
• full legal names and physical addresses of the parties, where possible
• a description of the grant activity and the charity's charitable purpose it furthers
• the location of the activity
• where appropriate, provisions for:
  • transferring resources in periodic instalments based on demonstrated performance, as well as for withholding resources
  • terminating the grant
  • returning unused resources when required
• a provision that any resources transferred to the grantee will continue to be used only for the charity’s charitable purposes in the future
• timelines and frequency of reports, including financial and progress reports (showing the receipt and disbursement of resources, and progress of the grant activity)
• a requirement for the grantee’s books and records to be sufficiently detailed to allow it to track the use of grant funds and provide an accounting to the charity in its reporting; and to track each grant separately from its other funds in its books and records
• the signature of directors, trustees, or like officials authorized to receive the grant
• the date the agreement was signed

59. A reporting plan helps a charity meet the accountability requirements by tracking and documenting whether the grantee uses the resources as set out in the agreement. 

60. Some examples of reporting could include:

• final reports with supporting documentation, such as expense receipts, financial statements, and bank records 
• interim reports, if appropriate, with supporting documentation
• records of communication by telephone, videoconference, email
• photographs or videos
• audit reports
• on-site visits from the charity's staff

61. We recommend that every grant require a final written report from the grantee, along with supporting documentation, if appropriate. By doing this, the grantee can provide the charity with the information the charity needs to show it has met the accountability requirements. The charity could document in its books and records that it has reviewed the final report and that no further action is required. We also recommend obtaining interim reports for longer-term and higher-risk grants.

62. In longer-term or higher-risk situations, a charity should consider transferring resources in periodic instalments, rather than in one lump sum. This helps the charity to meet the accountability requirements and mitigate any losses if resources are not applied according to the terms of the agreement.

63. A charity should also include in the written agreement the right to terminate the grant and have the grantee return any unused resources. 

64. Asking the grantee to track the charity’s funds is an accountability tool that will help both the grantee and charity document the use of resources. Tracking does not mean that the grantee needs to maintain separate books and records or a separate bank account in respect of the grant.

65. During the description of activity and written agreement stages, a charity should request that the:

• grantee track each grant separately from its other funds in its books and records, if feasible
• grantee’s reports and supporting documentation contain enough detail to allow it to show the use of grant funds when it reports back to the charity

74. The Income Tax Act requires that a charity that is designated as a “charitable organization” disburse no more than 50% of its income by way of gifts to qualified donees; otherwise, it may be re designated as a public foundation.^{Footnote 25} However, there is no limit on how much of its income a charitable organization may devote to making grants to grantees (non-qualified donees), and this will not affect a charity’s designation as a charitable organization.

75. The Income Tax Act provides that a charity could have its registration revoked if it accepts a gift from a donor that is expressly or implicitly conditional on the charity “gifting” it over to a specific recipient, other than a qualified donee.^{Footnote 26} This prohibition covers grants to grantees. The intent of this provision is to “prevent organizations from acting as conduits in the making of a directed gift” to a non-qualified donee.^{Footnote 27}  This prevents situations such as where a charity, with donor knowledge, solely exists as a fundraising arm of an affiliate organization. In these circumstances, the charity would not be in a position to make decisions around the use of resources, or act independently of the affiliate.

76. Here is an example of an explicitly conditional gift:

• A donor indicates that a gift must be used to grant money to a specific non-qualified donee, and if it is not used for that purpose, the funds must be returned to the donor. This could constitute a legally binding conditional gift, and if the charity accepted it, this could jeopardize its registration.

77. Here is an example of an implicitly conditional gift:

• A charity includes the name of a non-qualified donee in its own name, purposes, or other formal documents, indicating this would be the sole recipient of any grants the charity makes. Any funds the charity receives from a donor could be implicitly conditional on the charity granting it over to the specified non-qualified donee, and could jeopardize the charity’s registration.

78. To avoid concerns about directed gifts, the charity should retain authority over the use of its resources, and clearly communicate this to the donors. For example, the charity could communicate that:

• Donors can indicate their program preference for how a charity will apply their donation, but ultimate authority on the use of resources must rest with the charity.
• If the charity does not use the donation the way the donors prefer, the charity will not return the donation to the donors.

79. For example, this message could be included on the donations page of the charity’s website and in any of its fundraising communications.

80. Provided a charity can show it retains authority over the use of its resources, we will consider the charity to not be engaged in directed giving.

81. Alternatively, a charity could use the donation to carry on its own activities through an intermediary, provided the charity exercises direction and control over the use of its resources. 

82. A charity can make many kinds of grants, including non-cash grants. For reporting purposes, and to help the charity meet its disbursement quota, the charity must be able to determine the fair market value of non-cash grants.^{Footnote 28}

83. The Income Tax Regulations were amended in 2022 to provide:^{Footnote 29}

84. If a charity disburses a total of more than $5,000 in cash or non-cash grants to a grantee in a taxation year, whether in single or multiple grants, the charity must report in the T3010, Registered Charity Information Return, all of the following for each applicable grantee:

• the name of the grantee
• the purpose of each grant made to the grantee
• the total amount granted to the grantee in the taxation year

85. For these grants, the charity also provides information on the T3010 about the location where the grant activity takes place.

86. When a charity makes a grant that totals $5,000 or less in cash or non-cash grants to a grantee in a taxation year, the T3010 asks for the total number of these grantees and the total amount of all of these grants.

87. Grant information reported in the T3010 will be available to the public, including the names of grantees that received more than $5,000 from the charity, and applies to grantees who operate both inside and outside Canada.

88. A charity can apply to the CRA to make a special request that certain information not be made available to the public if its release would place the charity, grantee, their staff, or volunteers in danger.

89. For more information on reporting grants, see T4033 Completing the Registered Charity Information Return.

90. After a disaster or other emergency, organizations often want to help those affected. Registered charities may need to amend their charitable purposes to provide disaster relief. Non-qualified donees may want to apply for charitable status.

91. Because the situation is usually urgent, we typically assign priority to these files. However, disaster or emergency relief organizations must still meet all legal requirements for registration.

92. Applying for registered charity status may not be the most suitable path for a non-qualified donee. However, it may be eligible to receive a grant from an existing registered charity to carry on disaster relief. 

93. After a disaster or other emergency, local authorities may only allow access to well-established relief organizations. If an organization does not have a background in this type of work, it is often faster and more effective to support existing registered charities or other qualified donees that have the experience, resources, and infrastructure in place to respond. Registered charities can also provide grants to established and capable non-qualified donees. 

94. A charity may wish to “pool” its resources with multiple organizations (other grantors) when it makes a grant. We recognize that joint initiatives such as pooled grants operate differently than one-on-one granting arrangements. We recommend the charity sign onto at least one written agreement with all parties when the charity engages in pooled grants. We recognize this may not always be feasible and that other accountability arrangements may be acceptable.

95. Below are our special accountability considerations for pooled grants.

96. These accountability tools allow a charity to show that it made a grant that was carefully considered and resulted in the furtherance of the charity’s charitable purpose in a way that meets the accountability requirements.

97. In addition to the factors identified in section 3.2, there are unique factors to consider when charities pool resources. We recommend more extensive grant documentation in circumstances such as when the:

• number of grantors or grantees is large
• grantors are made up predominantly of non-charitable organizations
• grantee has never been the recipient of pooled grants before
• charity grants real property
• purpose of the pooled grant is a mix of both charitable and non-charitable purposes

98. If it is not possible to apply the accountability tools, we recommend approaching pooled grants cautiously. For complex pooled grants, a charity may wish to consult with others who have experience in this area before entering into the arrangement.

99. If a charity is transferring charitable goods only, this is generally considered a low-risk activity because the non-cash resources would likely only be used for charitable purposes. For example, medical supplies like antibiotics and instruments will likely only be used to treat the sick, while school supplies like textbooks will likely only be used to advance education.

100. Charities should still be aware of other factors listed in section 3.2 that might require more due diligence.

101. Below are our special accountability considerations for granting charitable goods.

102. A charity may wish to grant real property to a grantee. For example, this includes transferring property title or granting cash for a grantee to purchase or renovate real property. In most situations, the charity is not permitted to transfer the title or ownership of real property to a non-qualified donee, including a local organization or government body. This is because the land and buildings might be used for non-charitable purposes. However, a transfer of real property might be acceptable as a grant to a grantee if the charity follows all legal requirements.

103. Granting real property is considered high risk, as it is difficult for the charity to ensure the property will continue to be used for the charity’s charitable purposes once it is granted. The charity should assess whether the real property may be used for non-charitable purposes, including providing an unacceptable private benefit. Before a charity grants any real property, we recommend contacting us to discuss available options.

104. Below are our special accountability considerations for granting real property.

105. A charity is responsible for making sure that it does not support terrorist activities, including by making a grant to an individual or group that is engaged in or supports terrorist activities (but see also the humanitarian exemption and authorization regime in the Criminal Code^{Footnote 30} ).

106. For more information about a charity’s responsibilities with respect to terrorism, go to Checklist for charities on avoiding terrorist abuse.

107. Under the Charities Registration (Security Information) Act and the Income Tax Act, a charity's registration may be revoked if the charity makes its resources available, either directly or indirectly, to a listed entity, as defined in subsection 83.01(1) of the Criminal Code, or to any other entity (person, group, trust, partnership, or fund, or an unincorporated association or organization) that engages in terrorist activities or activities in support of them. 

108. Any charity making a grant to a grantee that is listed as a terrorist organization will lose its charitable registration. The Income Tax Act also prevents individuals with a known history of supporting terrorism from becoming a director, trustee, or similar official of a charity.^{Footnote 31}

109. Charities are also subject to prohibitions on funding or otherwise facilitating terrorism, as contained in the Criminal Code and various regulations enacted under the United Nations Act. For more information, go to Charities in the international context.

110. A charity can carry on its own activities both inside and outside Canada. Similarly, it can make grants to grantees that operate both inside and outside Canada.

111. A charity’s purposes and activities must always comply with Canadian law. Before making grants to grantees operating outside Canada, the charity should become aware of local laws where the grant activities will take place, and how they would affect the grant. This will help the charity make sure the public benefit provided by the grant is not offset by harm to the grantee, the grant's beneficiaries, or anyone else.

112. Under Canadian law, most activities that are charitable in Canada are also charitable abroad. However, the courts have stated that some activities that are charitable in Canada may not be considered charitable under Canadian law if carried out in a different country. For example, it is charitable to make a grant that would increase the effectiveness and efficiency of Canada's armed forces, but it is not charitable under Canadian law to make a grant that would support the armed forces of another country.

113. Whether grant activities take place inside or outside Canada, they must not be contrary to officially declared and implemented Canadian public policy. For example, see CSP-P13, Public policy, and see anti-terrorism considerations in section 4.