CRA released today the updated guidance CG-002, Canadian registered charities carrying on activities outside Canada.  Essentially, this guidance deals with Canadian charities conducting foreign activities.  About 5000 Canadian registered charities conduct foreign activities every year.  Over the next 10 years up to $80 billion, much of it highly tax-subsidized funds, will be sent by Canadian charities to work abroad and we need to have a vigorous system for ensuring that funds are used appropriately.

CRA presented on an earlier version of this revised guidance in April 2019 at a full-day conference our law firm held on international philanthropy in Toronto.  At that time they said that the guidance would be published quickly – but apparently, it was held up for over 1.5 years which is unfortunate.

Here are the main changes to the guidance.  It happens to be 10 items so I will call it my top 10 changes (but I did not find any other significant changes!):

  1. They have removed all references to “agent”, “agency”, “subagency” – while a Canadian charity can still use an agency agreement most charities that do foreign activities have stopped using this antiquated agreement and now prefer contractor agreements.
  2. When CRA describes the 3 main types of agreements they refer to 1) Consultant or contractor, 2) Joint venture participant and 3) Co-operative participants and the CRA emphasizes that as long as there is direction and control other types of agreements could be acceptable.
  3. CRA has changed references to restrictions on transferring “capital property” to rather “real property” which is what CRA really was aiming at in the guidance.
  4. CRA highlights on many occasions that you can contact them.  It is not going to be possible for CRA to come up with a guidance that covers every issue affecting 5000 charities operating in almost 200 countries (nor do we want that!) If you are concerned about something, it might be a good idea to call write to CRA about the issue.  Sometimes there will be a particular fact pattern and CRA will agree in those particular circumstances that it is appropriate to do something even though there is nothing in the guidance to indicate so.
  5. They have included references to the very important 2019 case Promised Land Ministries v. The Queen (2019 TCC 145) I really cannot emphasize enough the importance of reading this short case if you want to see the level of books and records a judge will think a charity needs.
  6. They have changed the rule of thumb for small projects that may not require a formal agreement from one-time activities that are under $1000 to instead $5000.  This exception only applies to small one-time activities and there is still the need to maintain other forms of communication to show direction and control.
  7.  The CRA has included references to “scanned documents”, “videoconferences”, etc. to update the examples given.
  8. The CRA has clarified that a charity’s funds must either be kept in a separate bank account OR clearly accounted for separately in its books and records of the intermediary.   There were two references in the past guidance that appeared to be contradictory and CRA has even been more clear that the intermediary does not have to have a separate bank account, but then the intermediary “should account for them separately from its other funds in its books and records”.
  9. The CRA has emphasized that just having a spreadsheet saying that $4 million was spent is not adequate you need to have source documents to show that.
  10. CRA reminds foreign activity charities that there are also many other regular requirements of being a Canadian registered charity that also apply to them.  “For more information, see Guidance CG-017, General requirements for charitable registration.”

A surprise was that CRA removed the statement “Canadian registered charities make important and valuable contributions throughout the world.”  I liked that statement but now it is gone.  I really should not read too much into that.  Perhaps the CRA does not think that foreign activity charities are making a valuable contribution! Perhaps CRA has been watching the WE Charity scandal unfold over the last 6 months! Perhaps they deleted it by accident? Ok probably not at all important.

The CRA had announced in 2019 that they are considering a policy change that would have allowed documents to be kept in the cloud and not necessarily on a server in Canada to meet the requirements that the books and records be at a charity’s address in Canada.  On audits, we have found that depending on the circumstances CRA will sometimes agree that this can work. This policy change was not included in this revised guidance but perhaps in the future it will.

The most important thing I can suggest with charities is to go through the guidance – read it from top to bottom.   The amount of misinformation circulating about CRA’s foreign activity guidance and legal requirements for foreign activities is extreme and the only way for people to actually understand what is CRA’s position on foreign activities and the current law is to read the guidance.  I will emphasize that the guidance is available for free!  Now, I know that some people do not take stuff for free seriously, so I developed a 4-hour course on foreign activities about a year ago and it is expensive and you can take it.  Actually, if you are spending lots on foreign activities or doing a lot of work in that area, it is probably not a bad investment.  Cross-border philanthropy results in lots of good abroad and also lots of funds flowing to Canadian charities in Canada.

I will probably be having a few Zoom calls over the next few months going over the changes and how they affect Canadian individual charities – the bottom line is that ‘Canadian registered charities make important and valuable contributions throughout the world’ and understanding the regulatory requirements in Canada and outside of Canada for such activities is important.

 

The CRA also released their companion guidance Using an intermediary to carry on a charity’s activities within Canada which deals with Canadian charities operating in Canada.