January 18, 2012

Webinar “Successfully funding First Nations communities in Canada in compliance with CRA guidance”

[Update - We are delighted to have over 65 people/organizations attend the webinar “Successfully Funding First Nations Communities in Canada in Compliance with CRA Guidance”  Here is an archived version of the presentation:  https://ocsa.webex.com/ocsa/lsr.php?AT=pb&SP=TC&rID=8543797&act=pb&rKey=7ae8d62d96563d62  Also here is a shortlink if the long link does not work:  http://ow.ly/90e1N  Here is a copy of the presentation in PDF of Successfully funding First Nations communities in Canada in compliance with CRA guidance]

On February 9, 2012 I will be delivering a webinar entitled “Successfully funding First Nations communities in Canada in compliance with CRA guidance” along with The Circle on Philanthropy and Aboriginal Peoples in Canada, Canadian Environmental Grantmakers’ Network and the Charity Law Information Program.

Topic:  Successfully Funding First Nations Communities in Canada in Compliance with CRA Guidance
Starting time:  1:00 pm, Eastern Standard Time (New York, GMT-05:00) On: February 9th at 1:00 ET

Duration:  1 hour
Presenters:  Mark Blumberg
Description:  The Circle on Philanthropy and Aboriginal Peoples in Canada, Canadian Environmental Grantmakers’ Network and the Charity Law Information Program present a webinar: Successfully funding First Nations communities in Canada in compliance with CRA guidance.
Moderated by: Ruth Richardson, Founder Small Change Fund
Featuring: Mark Blumberg, Charity lawyer and Editor, http://www.canadiancharitylaw.ca.
In 2009, a survey of Philanthropic Foundations of Canada members and Circle members identified that of the $3.5 million in grants currently made for work in First Nations, Inuit and Métis communities, about two thirds of that amount was awarded to the non-aboriginal organizations working within these communities, and only one-third to the communities themselves. How can we increase philanthropy in First Nations Inuit and Métis communities? Join Mark Blumberg in a conversation about:
 Effectively funding qualified donees
 Important differences between funding qualified and non-qualified donees
 CRA’s new guidance “Using an Intermediary to Carry out a Charity’s Activities within Canada” with practical examples of permissible structured relationships
 Ideas for doing good that do not involve charities
 Opportunity for questions and answers.
Mark Blumberg is a partner at the law firm of Blumberg Segal LLP in Toronto and works primarily in the areas of non-profit and charity law.
The Circle will be hosting a series of networking and learning opportunities focusing on giving, sharing and philanthropy in First Nations, Inuit and Métis communities in Canada. Please consider joining to receive membership discounts (http://philanthropyandaboriginalpeoples.ca/membership/membership-guidelines/).
The Canadian Enviromental GrantMakers’ Network
http://www.cegn.org/
The Circle on Philanthropy and Aboriginal Peoples in Canada
http://philanthropyandaboriginalpeoples.ca/
Host’s name:  Capacity Builders
Host’s email:  .(JavaScript must be enabled to view this email address)

June 22, 2011

What is Canadian registered Charity’s “Own Activities” when using an intermediary?

What is Canadian registered Charity’s “Own Activities” when using an intermediary?

In CRA’s Guidance “Using an Intermediary to Carry out a Charity’s Activities within Canada” it notes:

“1.1. Own activities
A charity usually carries on its activities using its staff (including volunteers, directors, or employees), or through an intermediary (for example - an agent or contractor). However, when using an intermediary, it must still direct and control the use of its resources, [Footnote 3] although it may generally delegate authority to make day-to-day operating decisions. A charity cannot merely be a conduit to funnel money to an organization that is not a qualified donee.
For this guidance, an intermediary is a person or non-qualified donee that the charity works with to carry out its own activities.”

For more information on the CRA Guidance “Using an Intermediary to Carry out a Charity’s Activities within Canada” (Reference number CG-004) see:
http://www.canadiancharitylaw.ca/index.php/blog/category/using_intermediaries_in_canada/ or
http://www.cra-arc.gc.ca/chrts-gvng/chrts/plcy/cgd/ntrmdry-eng.html

What is Direction and control for a Canadian charity when using intermediaries in Canada?

The CRA expects that Canadian charities using intermediaries in Canada such as non-profits that are not charities or business will maintain direction and control over their resources.  What is “direction and control”?

In CRA’s Guidance “Using an Intermediary to Carry out a Charity’s Activities within Canada” it notes:

“1.2. Direction and control when using intermediaries
The Canada Revenue Agency (CRA) requires that a charity take all necessary measures to direct and control the use of its resources when carrying out activities through an intermediary. When carrying out activities through an intermediary, the following steps are strongly recommended:

• Create a written agreement with the intermediary, and implement its terms.
• Communicate a clear, complete, and detailed description of the activity to the intermediary.
• Monitor and supervise the activity.
• Provide clear, complete, and detailed instructions to the intermediary on an ongoing basis.
• For agency relationships, segregate funds, as well as maintain separate books and records.
• Make periodic transfers of resources, based on demonstrated performance.

A charity must maintain a record of steps taken to direct and control the use of its resources, as part of its books and records, to allow the CRA to verify that all of the charity’s resources have been used for its own activities.
For more information on conduits, see section 3.5. For more information on direction and control, see section 5.”

For more information on the CRA Guidance “Using an Intermediary to Carry out a Charity’s Activities within Canada” (Reference number CG-004) see:
http://www.canadiancharitylaw.ca/index.php/blog/category/using_intermediaries_in_canada/ or
http://www.cra-arc.gc.ca/chrts-gvng/chrts/plcy/cgd/ntrmdry-eng.html

What is the purpose of the Guidance “Using an Intermediary to Carry out a Charity’s Activities”

The purpose of the Guidance “Using an Intermediary to Carry out a Charity’s Activities within Canada” is to help charities understand how they can appropriately work with non-charities in carrying out their charitable activities and CRA’s expectations of registered Canadian charities. 

In CRA’s Guidance “Using an Intermediary to Carry out a Charity’s Activities within Canada” it notes:

“It is intended to help registered charities and applicants for charitable registration carrying on activities within Canada through an intermediary to understand the CRA’s interpretation of, and expectations related to, the provisions of the Income Tax Act concerning charitable registration. To establish whether an activity complies with the Income Tax Act, the CRA will have to examine the facts of the situation.

For this guidance, charity means a Canadian charity that is registered under the Income Tax Act. Applicant means an organization applying for registered charity status, and which intends to carry on activities through an intermediary.

This guidance generally assumes that a charity working with an intermediary is doing so to carry on charitable activities within Canada. The requirements in this guidance about working with intermediaries also apply to all charitable activities carried on outside Canada. For more information on this topic, see Guidance for Canadian Registered Charities Carrying Out Activities Outside Canada.

For information on registering a charity, see the Charities Directorate’s Web page on applying for registration. If you have questions about this guidance or need more information, you can call the Charities Directorate at the following telephone numbers:
• 613-954-0410 (for local Ottawa calls)
• 1-800-267-2384 (for toll-free, long-distance calls)
• 1-800-665-0354 (for toll-free TTY service)
The Charities Directorate’s fax number is 613-954-8037.”

For more information on the CRA Guidance “Using an Intermediary to Carry out a Charity’s Activities within Canada” (Reference number CG-004) see:
http://www.canadiancharitylaw.ca/index.php/blog/category/using_intermediaries_in_canada/ or
http://www.cra-arc.gc.ca/chrts-gvng/chrts/plcy/cgd/ntrmdry-eng.html

Are there restrictions on how a Canadian registered charity can use its resources?

Yes there are restrictions on how a Canadian registered charity can use its resources.

In CRA’s Guidance “Using an Intermediary to Carry out a Charity’s Activities within Canada” it notes:

“3. Are there restrictions on how a charity can use its resources?
The Income Tax Act allows a charity to operate in only two ways:
• carry out its own charitable activities
• make gifts to qualified donees

3.1. What are charitable activities?

Charitable activities are those that further a purpose recognized as charitable under common law, such as providing housing to the homeless, scholarships to students, or medical care to the sick.
Apart from making gifts to qualified donees, 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.
A charity’s resources include all physical, financial, and material resources (for example - buildings, money, or donated goods), intellectual property, and its staff.”

For more information on the CRA Guidance “Using an Intermediary to Carry out a Charity’s Activities within Canada” (Reference number CG-004) see:
http://www.canadiancharitylaw.ca/index.php/blog/category/using_intermediaries_in_canada/ or
http://www.cra-arc.gc.ca/chrts-gvng/chrts/plcy/cgd/ntrmdry-eng.html

How can a charity carry out its own charitable activities using an intermediary?

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. 

In CRA’s Guidance “Using an Intermediary to Carry out a Charity’s Activities within Canada” it notes:

3.2. How can a charity carry out its own charitable activities?

A charity may use its own staff (including volunteers, directors, or employees) to carry out its activities. Assigning the charity’s staff to carry out its activities is typically the easiest way for a charity to meet the own activities test.

A charity may use an intermediary to carry out its activities. For this guidance, an intermediary is an individual or non-qualified donee [Footnote 6] that the charity works with to carry out its own activities. For example, a charity might do one of the following:
• hire a company;
• enter into an agreement with a non-profit organization to have the organization deliver specific charitable programs for the charity; or
• pool its resources with another organization to complete a project.”

As well in the Guidance CRA discusses in what is known as the ‘Charitable Goods Policy”:

“In certain limited circumstances, the CRA will consider a charity to be carrying out its own activities by transferring certain resources to a non-qualified donee. Before a charity carries out its own activities by transferring its resources to a non-qualified donee, the CRA expects all of the following conditions to apply:

• The nature of the property being transferred is such that it can reasonably be used only for charitable purposes (for example - medical supplies like antibiotics and instruments, which will likely only be used to treat the sick, or school supplies like textbooks, which will likely only be used to advance education); Note: transfers of money are not acceptable, and always require ongoing direction and control.

• Both parties understand and agree the property is to be used only for the specified charitable activities.

• Based on an investigation into the status and activities of the non-qualified donee receiving the property (including the outcome of any previous transfers by the charity), it is reasonable for the charity to have a strong expectation that the organization will use the property only for the intended charitable activities.

Investigating the status and activities of an intermediary would typically include examining details such as the intermediary’s stated goals and purposes, any previous relationship with the charity and other charities, its history and general reputation, and relevant media reports.

If any of the above three conditions do not apply, then a charity will only be able to meet the own activities test by directing and controlling the use of its resources as otherwise stated in this guidance. [Footnote 8] If a charity does not direct and control the use of its resources as required, it risks sanctions under the Income Tax Act. This includes financial penalties and revocation of its status as a registered charity.

Examples of a transfer of resources to a non-qualified donee where the above conditions could apply include the following:

• transfers, by a research organization, of books and scientific reports to a reputable library or school that is not a qualified donee

• transfers of food and blankets to a non-profit organization that is coping with a natural disaster, and has a long history of successful operations

A charity cannot transfer any kind of property if it knows, or ought to know, that the property will be used either for non-charitable purposes [Footnote 9] or to circumvent the provisions of the Income Tax Act.

If a charity intends to build or buy capital property in partnership with an intermediary, the charity must retain ownership of its share of this property. In exceptional cases where it is impossible for the charity to retain ownership of its share of the property, the charity should consult with the CRA to consider the available options.
A charity does not have to adopt measures to direct and control the use of its resources when transferring property to the proper beneficiaries of its charitable activities. For example, a charity could give school supplies, such as books or writing instruments, to impoverished students without having to direct and control how the students use those resources.”

For more information on the CRA Guidance “Using an Intermediary to Carry out a Charity’s Activities within Canada” (Reference number CG-004) see:
http://www.canadiancharitylaw.ca/index.php/blog/category/using_intermediaries_in_canada/ or
http://www.cra-arc.gc.ca/chrts-gvng/chrts/plcy/cgd/ntrmdry-eng.html

Are their court decisions about the use of intermediaries by Canadian registered charities?

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. 

In CRA’s Guidance “Using an Intermediary to Carry out a Charity’s Activities within Canada” it notes:

3.3. Court decisions about the use of intermediaries
The Federal Court of Appeal has rendered three decisions concerning charities using intermediaries to carry out their activities. Each case was an appeal of a revocation of charitable status by the CRA, and the Federal Court of Appeal dismissed each appeal.
The Federal Court of Appeal’s decisions confirmed that a charity working with an intermediary must control the activities carried out on its behalf and maintain direction and control over the use of its resources. Charities or applicants for charitable status may find it useful to review these decisions, which are as follows:
• The Canadian Committee for the Tel Aviv Foundation v. Canada (2002 FCA 72), 2002-03-01
• Canadian Magen David Adom for Israel v. Canada (Minister of National Revenue) (2002 FCA 323), 2002-09-13
• Bayit Lepletot v. Canada (Minister of National Revenue) (2006 FCA 128), 2006-03-28

For more information on the CRA Guidance “Using an Intermediary to Carry out a Charity’s Activities within Canada” (Reference number CG-004) see:
http://www.canadiancharitylaw.ca/index.php/blog/category/using_intermediaries_in_canada/ or
http://www.cra-arc.gc.ca/chrts-gvng/chrts/plcy/cgd/ntrmdry-eng.html

What is a gift to a qualified donee under CRA’s Guidance on using intermediaries?

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.

In CRA’s Guidance “Using an Intermediary to Carry out a Charity’s Activities within Canada” it notes:

“3.4. What is a gift to a qualified donee?
A gift to a qualified donee is a transfer of money or any other property to a qualified donee.
Under the Income Tax Act, qualified donees are organizations that can issue official donation receipts for gifts that individuals and corporations make to them. Some examples of qualified donees include other registered Canadian charities, the Government of Canada, prescribed universities outside Canada, the United Nations and its agencies, and certain charitable organizations outside Canada to which Her Majesty in right of Canada has made a gift.”

For more information on the CRA Guidance “Using an Intermediary to Carry out a Charity’s Activities within Canada” (Reference number CG-004) see:
http://www.canadiancharitylaw.ca/index.php/blog/category/using_intermediaries_in_canada/ or
http://www.cra-arc.gc.ca/chrts-gvng/chrts/plcy/cgd/ntrmdry-eng.html

What is required by CRA for a written agreement between a registered charity and an intermediary?

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.

In CRA’s Guidance “Using an Intermediary to Carry out a Charity’s Activities within Canada” it notes:

“5.2. What is a written agreement?

A written agreement is a document that helps establish the relationship between a charity and its intermediary. The agreement should provide the authority and means for the charity to meet the own activities test, including by maintaining direction and control over its resources and over its intermediary’s actions as they relate to the charity’s activities. [Footnote 14]
The CRA recommends that a charity enter into a written agreement with any intermediary. Although there is no legal requirement to have a written agreement, and the same result might be achieved by other means, [Footnote 15] a properly executed written agreement is an effective way to help meet the own activities test.

However, signing an agreement is not enough to prove that a charity meets the own activities test. The charity must also be able to show the CRA that the charity has a real, ongoing, active relationship with its intermediary. [Footnote 16]

Entering into a written agreement and implementing the terms of that agreement is usually an effective way to meet the own activities test. However, the CRA acknowledges that in situations where the amount of resources involved is minor, and is a one-time activity, the complications of developing a full, formal, written agreement may outweigh the benefits. In situations where the money spent on a one-time activity is $1,000 or less, other documentary means might be used to show direction and control over the use of resources by intermediaries.

If a charity has concerns or questions about this type of arrangement, it should contact the CRA.

On occasion, applicants for charitable status intend to carry on activities through an intermediary. In these situations, a copy of a written agreement included with the application is often a good way to show the CRA that the relationship the applicant will enter into with its intermediary will enable the applicant to meet all requirements for registration.
Although there is no established template for written agreements, acceptable agreements would normally contain the elements listed in Appendix C.”

In CRA’s Guidance “Using an Intermediary to Carry out a Charity’s Activities within Canada” in ‘Appendix C - What should a written agreement contain?’ it notes:

Appendix C - What should a written agreement contain?
Below is a list to help charities create a written agreement. However, charities should be mindful that their relationship with their intermediaries is not only judged on how well their agreements are written but, more importantly, on their ability to show that they direct and control the use of their resources through active, ongoing, sustained relationships.
Even when a charity and intermediary create an agreement that contains the elements contained in the checklist, either the charity or the CRA can refer to and rely on other relevant evidence to establish the nature of the relationship between the parties to the arrangement. 
Basic elements of a written agreement
• exact legal names and physical addresses of all parties
• a clear, complete, and detailed description of the activities to be carried out by the intermediary, and an explanation of how the activities further the charity’s purposes
• the location(s) where the activity will be carried on (for example - physical address, town or city)
• all time frames and deadlines
• any provision for regular written financial and progress reports to prove the receipt and disbursement of funds, as well as the progress of the activity
• a statement of the right to inspect the activity, and the related books and records, on reasonably short notice
• provision for funding in instalments based on satisfactory performance, and for the withdrawing or withholding of funds or other resources if required (funding includes the transfers of all resources)
• provision for issuing ongoing instructions as required
• for agency agreements, provision for the charity’s funds to be segregated from those of the intermediary, as well as for the intermediary to keep separate books and records
• If any of the charity’s funds or property are to be used in the acquisition, construction, or improvement of immovable property, the title of the property will vest in the name of the charity. If not, there will be provision showing how legal title to that property is held by a qualified donee.
• for joint ventures, provisions that enable the charity to be an active partner, with a proportionate degree of direction and control in the venture as a whole, as well as assurances of the following:
o the charity’s resources are devoted to activities that further its purposes; and
o 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

For more information on the CRA Guidance “Using an Intermediary to Carry out a Charity’s Activities within Canada” (Reference number CG-004) see:
http://www.canadiancharitylaw.ca/index.php/blog/category/using_intermediaries_in_canada/ or
http://www.cra-arc.gc.ca/chrts-gvng/chrts/plcy/cgd/ntrmdry-eng.html

What is a description of activities for charitable activities carried out by an intermediary?

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.

In CRA’s Guidance “Using an Intermediary to Carry out a Charity’s Activities within Canada” it notes:

“5.3. What is a description of activities?
Before starting an activity, the charity and its intermediary should agree on a clear, complete, and detailed description of the activity. The charity should be able to document its exact nature, scope, and complexity.
Depending on the type, complexity, duration, and expense of an activity, the charity should be able to provide documentary evidence that shows:
• exactly what the activity involves, its purpose, and the charitable benefit it provides;
• who benefits from the activity;
• the precise location(s) where the activity is carried on;
• a comprehensive budget for the activity, including payment schedules;
• the expected start-up and completion dates for the activity, as well as other pertinent timelines;
• a description of the deliverables, milestones, and performance benchmarks that are measured and reported;
• the specific details concerning how the charity monitors the activity, the use of its resources, and the intermediary carrying on the activity;
• the mechanisms that enable the charity to modify the nature or scope of the activity, including discontinuance of the activity if the situation requires (for example - the intermediary begins misusing funds);
• the nature, amount, sources, and destination of income that the activity generates, if any (for example - tuition fees from operating a school, or sales from goods produced by poor artisans in economically challenged areas [Footnote 17]); and
• any contributions that other organizations or bodies are expected to make to the activity.”

For more information on the CRA Guidance “Using an Intermediary to Carry out a Charity’s Activities within Canada” (Reference number CG-004) see:
http://www.canadiancharitylaw.ca/index.php/blog/category/using_intermediaries_in_canada/ or
http://www.cra-arc.gc.ca/chrts-gvng/chrts/plcy/cgd/ntrmdry-eng.html