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.

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

3.5. What is a conduit?
For the purposes of this guidance, a conduit is an organization that accepts donations for which it typically issues tax-deductible receipts and then funnels the money, without maintaining direction and control, to a non-qualified donee. Acting as a conduit violates the Income Tax Act and could jeopardize a charity’s registered status. [Footnote 11]

Example
A charity is registered to protect the environment. A non-profit organization with identical purposes approaches the charity, and explains it has submitted an application for charitable status, but has not yet been registered.

The non-profit asks if the charity will accept donations on its behalf, issue receipts, and then forward the money to the non-profit. The charity agrees to the non-profit organization’s request.

The charity has no direction or control over how the receipted funds are used, and no say in where, when or how the activity is carried out. In this case, the charity is simply funding the non-profit’s own activities, and therefore, even though the activity itself may be charitable, the charity is acting as a conduit.

To avoid acting as a conduit, the charity must have real and demonstrable control over the use of its money, so that the carrying out of that activity by the intermediary amounts to the charity carrying on its own activity itself.

A charity may also be acting as a conduit when it transfers resources to a head body or umbrella organization that is not a qualified donee. In such cases, a charity and its head body may create a written agreement that gives the appearance that the head body is the charity’s intermediary.

To determine if a charity is acting as a conduit, the CRA will look at the following types of facts:
• Does the charity have any evidence that it exercises ongoing direction and control over the use of all of its resources?
• Does the charity keep adequate books and records at a Canadian address it has on file with the CRA?
• Does the charity receive goods and services of proportionate value for any money or other resources it sends to a non-qualified donee?
• Does the charity need permission from a non-qualified donee to undertake activities, or approval of how to carry out those 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:
https://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

Also this article that I wrote on the difference between a structured arrangement and conduit may be helpful:
http://www.capacitybuilders.ca/clip/Resources/Canadian_Charities_Working_with_Other_Canadian_or_International_Organizations_that_are_.pdf