June 22, 2011
Canadian registered charities can in general carry out their own activities by using staff or volunteer. That is not too difficult to understand. However, CRA also allows that a Canadian registered charity can carry out its own activities by using intermediaries such as contractors, agents, joint ventures etc.
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Yes there are a number of court decisions dealing with Canadian registered charities and how they are allowed to interact with organizations that are non-qualified donees.
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A qualified donee is a number of organizations that can issue official donation receipts. In general a Canadian registered charity is allowed to make a gift to another qualified donee. On the other hand a Canadian registered charity is not allowed to make a gift to a non-qualified donee ie. an organization that is not able to issue an “official donation receipt” for Canadian Income Tax purposes.
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A written agreement between a Canadian charity and an intermediary is important but not sufficient to show direction and control. Also CRA has certain requirements for agreements.
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What is a description of activities for charitable activities carried out by an intermediary? A “clear, complete, and detailed description ” desciption of activities is a ery important part of showing that a Canadian charity has “direction and control” over resources transferred to an intermediary.
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What is a conduit under CRA’s Guidance on Registered Charities Using an Intermediary In Canada? It is important for charities to understand the concept of “conduit”. Registered charities cannot just flow funds through from the registered charity to a non-profit that is not a charity - if a registered charity does that then it would be considered a conduit.
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It is important that any intermediary have the capacity to do the job and that there be a “strong expectation” that the funds or resources transferred from the charity will be used appropriately.
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The most common types of intermediaries are agent, contractor, joint venture, and co-operative participant. Here is further information on each of them.
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Understanding “direction and control” is very important for understanding the permissible relationships between a Canadian charity and a non-qualified donee. CRA’s guidance sets out how a charity should have “direction and control”.
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How and how much direction and control varies depending on the circumstances.
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