A written agreement between a Canadian charity and an intermediary is important but not sufficient to show direction and control. Also CRA has certain requirements for agreements.
In CRA’s Guidance “Using an Intermediary to Carry out a Charity’s Activities within Canada” it notes:
“5.2. What is a written agreement?
A written agreement is a document that helps establish the relationship between a charity and its intermediary. The agreement should provide the authority and means for the charity to meet the own activities test, including by maintaining direction and control over its resources and over its intermediary’s actions as they relate to the charity’s activities. [Footnote 14]
The CRA recommends that a charity enter into a written agreement with any intermediary. Although there is no legal requirement to have a written agreement, and the same result might be achieved by other means, [Footnote 15] a properly executed written agreement is an effective way to help meet the own activities test.
However, signing an agreement is not enough to prove that a charity meets the own activities test. The charity must also be able to show the CRA that the charity has a real, ongoing, active relationship with its intermediary. [Footnote 16]
Entering into a written agreement and implementing the terms of that agreement is usually an effective way to meet the own activities test. However, the CRA acknowledges that in situations where the amount of resources involved is minor, and is a one-time activity, the complications of developing a full, formal, written agreement may outweigh the benefits. In situations where the money spent on a one-time activity is $1,000 or less, other documentary means might be used to show direction and control over the use of resources by intermediaries.
If a charity has concerns or questions about this type of arrangement, it should contact the CRA.
On occasion, applicants for charitable status intend to carry on activities through an intermediary. In these situations, a copy of a written agreement included with the application is often a good way to show the CRA that the relationship the applicant will enter into with its intermediary will enable the applicant to meet all requirements for registration.
Although there is no established template for written agreements, acceptable agreements would normally contain the elements listed in Appendix C.”
In CRA’s Guidance “Using an Intermediary to Carry out a Charity’s Activities within Canada” in ‘Appendix C - What should a written agreement contain?’ it notes:
Appendix C - What should a written agreement contain?
Below is a list to help charities create a written agreement. However, charities should be mindful that their relationship with their intermediaries is not only judged on how well their agreements are written but, more importantly, on their ability to show that they direct and control the use of their resources through active, ongoing, sustained relationships.
Even when a charity and intermediary create an agreement that contains the elements contained in the checklist, either the charity or the CRA can refer to and rely on other relevant evidence to establish the nature of the relationship between the parties to the arrangement.
Basic elements of a written agreement
• exact legal names and physical addresses of all parties
• a clear, complete, and detailed description of the activities to be carried out by the intermediary, and an explanation of how the activities further the charity’s purposes
• the location(s) where the activity will be carried on (for example - physical address, town or city)
• all time frames and deadlines
• any provision for regular written financial and progress reports to prove the receipt and disbursement of funds, as well as the progress of the activity
• a statement of the right to inspect the activity, and the related books and records, on reasonably short notice
• provision for funding in instalments based on satisfactory performance, and for the withdrawing or withholding of funds or other resources if required (funding includes the transfers of all resources)
• provision for issuing ongoing instructions as required
• for agency agreements, provision for the charity’s funds to be segregated from those of the intermediary, as well as for the intermediary to keep separate books and records
• If any of the charity’s funds or property are to be used in the acquisition, construction, or improvement of immovable property, the title of the property will vest in the name of the charity. If not, there will be provision showing how legal title to that property is held by a qualified donee.
• for joint ventures, provisions that enable the charity to be an active partner, with a proportionate degree of direction and control in the venture as a whole, as well as assurances of the following:
o the charity’s resources are devoted to activities that further its purposes; and
o the charity maintains and receives financial statements and records for the entire project on a regular basis;
• effective date and termination provisions
• signature of all parties, and the date
For more information on the CRA Guidance “Using an Intermediary to Carry out a Charity’s Activities within Canada” (Reference number CG-004) see:
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Mark Blumberg is a partner at the law firm of Blumberg Segal LLP in Toronto and works almost exclusively in the areas of non-profit and charity law.