Understanding “direction and control” is very important for understanding the permissible relationships between a Canadian charity and a non-qualified donee.  CRA’s guidance sets out how a charity should have “direction and control”.

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

“5. What is direction and control?
When transferring resources to an intermediary, a charity must direct and control the use of its resources [Footnote 13] to meet the own activities test. The charity must be the body that makes decisions and sets parameters on significant issues related to the activity on an ongoing basis, such as the following:
• how the activity will be carried out
• the activity’s overall goals
• the area or region where the activity is carried out
• who benefits from the activity
• what goods and services the charity’s money will buy
• when the activity will begin and end

Maintaining direction and control does not mean a charity cannot accept advice from its intermediaries, or that a charity must make every decision involved in the carrying out of an activity, although it must have the ability to intervene in any decision. Typically, the types of decisions listed above would describe the overall framework of an activity.
An intermediary that carries out the work in the field is often in a better position to make day-to-day operational decisions. A charity can delegate the responsibility for such decisions to an intermediary, although this is not required under the Income Tax Act. For example, a charity might delegate the authority to make the following kinds of decisions:
• which local vendor to buy supplies from
• hiring and managing staff
• locating potential beneficiaries for an activity
• maintaining buildings owned or operated for the charity’s activities

The intermediary should report back to the charity on any decisions made, so that it can make sure that the intermediary continues to comply with the Income Tax Act. For example, an agent awarding scholarships for a charity should be able to provide a list of recipients. This will let the charity make sure the agent is not awarding scholarships only to friends and family of the agent. The charity can veto awards that are not appropriate, and so continue to meet the public benefit test.”

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