CRA's Guidance CG-002, Canadian Registered Charities Carrying Out Activities Outside Canada discusses a “development project”.  The guidance provides Canadian registered charities greater leeway in certain instances when conducting a “development project” to be able to hand over capital assets and immovable assets to a foreign non-qualified donee.  I have always thought that a development project would be carried out in what is referred to as the Global South/Third World/Developing Countries (the “South”) and would be trying to reduce poverty, promote education, improve the environment, or improve access to health care to provide some examples.

I recently wrote to CRA to inquire about this issue as a client of mine was interested in assisting a hospital in a foreign country and it would result in potentially certain equipment being transferred to a non-qualified donee.  In fact what I was surprised to learn was that a “development project” does not necessarily have to take place in the South. 

“Hi Mark, In regards to your question from last week, the Charities Directorate hasn't developed any specific methodology or criteria for deciding what is a development project. When we developed CG-002, we wanted to make sure there was some flexibility around this term, rather than define it too narrowly and inadvertently exclude projects that furthered a charitable purpose. As a rule, when we refer to a “development project”, we're addressing situations where the charity builds something, and transferring that property to a community directly furthers a charitable purpose, such as the relief of poverty. One example might be building a dam to protect a community from flooding. Typically, we wouldn't expect a charity to retain ownership of that dam. It's certainly possible that providing health care or relief of poverty in [a country formerly part of of the Soviet Union] could be a development project as described in Appendix B of CG-002. We'd have to look at the exact facts of the case, of course – transferring property to a relatively wealthy part of the country, for example, would be less likely to be considered a development project. Let me know if you need any further information.”

CRA's guidance provides CRA's views as to how the law would be interpreted on particular points. There have been 4 cases dealing with foreign activities and CRA has won each of those cases.  While CRA's guidance is not the divine word but it is very important to understanding potential regulatory risk and will be provided appropriate deference by the court.  It also illustrates that with the rights facts and circumstances CRA may take a position that provides more flexibility to a particular charity than what appears on the face of general guidance which is provided to 86,000 charities.  While there may be concerns with discussing issues with CRA, there can also be tremendous benefits.