The CRA has posted a note on the new anti-avoidance rules and designated gifts for Canadian charities that were introduced in the March 2010 Federal Budget.
http://www.cra-arc.gc.ca/chrts-gvng/chrts/prtng/gfts/nt-vdnc-eng.html
New anti-avoidance rules and designated gifts
The 2010 Federal Budget introduced new anti-avoidance provisions regarding gifts made between registered charities that are not at arm’s length. The budget also introduced the concept of a designated gift.
Anti-avoidance rule
A registered charity that receives a gift from another registered charity that is not at arm’s length must spend 100% of the fair market value of the gift (determined at the time of the gift):
•on its own charitable activities; or
•on gifts to qualified donees that are at arm’s length.
A registered charity must meet this anti-avoidance spending requirement in the fiscal period the gift was received, or in the following fiscal period. If a charity does not spend the amount on time, it may be subject to a penalty of 110% of the amount that it failed to spend, or to revocation of its registered status.
Note
The anti-avoidance spending requirement is in addition to a charity’s disbursement quota requirement.
If the donor charity chooses to designate the gift as outlined below, the recipient charity will not be subject to this additional spending requirement.
Designated gift
A designated gift is a type of gift made between registered charities that are not at arm’s length.
To designate a gift, the donor charity must indicate the gift is a designated gift in its information return for the fiscal period in which the gift is made. Charities that need to report a designated gift can use Form T1236, Qualified Donees Worksheet / Amounts Provided to Other Organizations. On the blank line below the BN/Registration number of the recipient charity, write designated gift and the amount of the gift that is designated.
A donor charity cannot use the designated gift to satisfy its disbursement quota. It cannot include the gift as:
•an amount spent on charitable activities (line 5000); or
•an amount transferred to qualified donees (line 5050).
We recommend that the donor charity inform the recipient charity that a gift is a designated gift to allow the recipient charity to adequately track its own spending requirement for the fiscal period.
Note
If the recipient charity holds on to the designated gift and does not use the gift in its charitable activities or administration, it may subsequently have to consider the value of the designated gift when determining the average value of property not used directly in charitable activities or administration for the calculation of its disbursement quota.
Related topics
•Charities: Disbursement quota reform
Related Posts
April 19, 2021
2021 Canadian Federal Budget – How will it affect the Canadian charitable sector?
A lot has changed in 2 years when the last Federal budget was delivered. Today, Canadian Finance Minister Chrystia Freeland has introduced a Federal…
April 19, 2021
Upcoming Webinars for the Canadian Charity Law Association
The Canadian Charity Law Association is delivering some upcoming webinars. Registration is free but space is limited. Topics are subject to change.…
April 14, 2021
If a charity official donation receipt does not have all mandatory elements then it can be invalid
In a recent Federal Court of Appeal case called Kueviakoe v. Canada, the court decided that an official donation receipt lacking certain basic or…