The CRA recently sent a response to the Canadian Tax Foundation on the new qualifying disbursement/grant to grantee and directed donations provisions. As many are aware, section 168(1)(f) of the ITA was amended to provide that CRA can revoke a charity, etc., when “(f) in the case of a registered charity, registered Canadian amateur athletic association or registered journalism organization, accepts a gift the granting of which was expressly or implicitly conditional on the charity, association or organization making a gift to another person, club, society, association or organization other than a qualified donee”.
In this letter, a question was posed to CRA of whether a charity accepts a gift with a “letter of wishes expressing the hope that the charity will transfer the property to a named grantee organization?” and whether CRA will consider this to be implicitly conditional notwithstanding that the letter of wishes said it was not.
The CRA’s response:
“Whether a registered charity has accepted a gift that was implicitly conditional for the purposes of paragraph 168(1)(f) of the Act is a mixed question of fact and law, the determination of which can only be made on a case-by-case basis following a review of the facts and circumstances and related documentation.”
The CRA could have just said a “letter of wishes” is enough. But they are not that stupid! So, they said that all facts and circumstances would need to be taken into account.
So, once CRA has reviewed the gift agreement, letter of wishes, all email correspondence and text messages dealing with the gift, any notes relating to the gift, what was publicly said about the gift by your organization and others, past relationships between the charity and the donor and grantee, filings of the charity, etc., then perhaps CRA can tell you whether this is a directed donation or an appropriate gift.
What is clear is that having a “letter of wishes” along with accepting a gift can result in revocation of your charity in some circumstances. So tread carefully. A letter of wishes may not be the wonderful “solution” that some may have suggested. The new qualifying disbursement rules and the directed donation requirements might have made it harder for Canadian charities to deal with non-qualified donees. Charities will need to be carefully reviewing their fundraising practices and grantmaking practices as a result of these changes. We have blogged extensively on these topics over the last few years.
Here is the CRA letter:
LANGIND E
DOCNUM 2022-0950551C6
AUTHOR Danis, Sylvie
DESCKEY 20
RATEKEY 2
REFDATE 221129
SUBJECT 2022 CTF – Q14 – Charity’s gift to grantee org
SECTION 149.1, 168(1)(f)
SECTION
SECTION
SECTION
$$$$
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA. Prenez note que ce document, bien qu’exact au moment émis, peut ne pas représenter la position actuelle de l’ARC.
PRINCIPAL ISSUES: Whether a particular gift is “implicitly conditional” on the registered charity transferring the property to another person, club, society, association or organization (other than a qualified donee) for purposes of 168(1)(f).
POSITION: It depends.
REASONS: Question of fact and law to be determined on a case by case basis.
2022 CTF Annual Conference
CRA Roundtable
Question 14: Charities – Transfer of Property to a Grantee Organization
Background
Recently, the Income Tax Act (Act) was amended to permit Canadian registered charities to make disbursements by way of a gift or by otherwise making resources available to a “grantee organization” which is defined to include a person, club, society, association or organization or prescribed entity, but not a qualified donee.
Paragraph 168(1)(f) of the Act was amended to permit the Minister to revoke a charity’s registration as follows:
168(1) Notice of intention to revoke registration
The Minister may, by registered mail, give notice to a person described in any of paragraphs (a) to (c) of the definition “qualified donee” in subsection 149.1(1) that the Minister proposes to revoke its registration if the person
(f) in the case of a registered charity, registered Canadian amateur athletic association or registered journalism organization, accepts a gift the granting of which was expressly or implicitly conditional on the charity, association or organization making a gift to another person, club, society, association or organization other than a qualified donee [emphasis added].
This amendment indicates that a registered charity cannot accept a gift of property where the donor, expressly or implicitly, directs the registered charity to transfer the property by way of a gift to a grantee organization.
Question
For purposes of paragraph 168(1)(f) of the Act, can a registered charity accept a gift of property from a donor who provides a letter of wishes expressing the hope that the charity will transfer the property to a named grantee organization? If the charity makes that transfer, will the Minister simply consider that the donation was “implicitly conditional” on the charity transferring the property to the grantee organization, notwithstanding that the letter says that it was not?
CRA Response
Prior to recent amendments, the Income Tax Act (Act) required that a registered charity devote its resources to charitable activities that the charity carried on itself or to providing gifts to qualified donees. Where a charity conducted activities through an intermediary organization (other than a qualified donee), the charity was required to maintain sufficient control and direction over the activity such that it could be considered its own activity.
Bill C-19 (endnote 1) amended the Act to allow a registered charity to make a qualifying disbursement, by way of a gift or otherwise making resources available, to a grantee organization, provided that the disbursement is in furtherance of a charitable purpose of the charity and the charity ensures that the disbursement is exclusively used to advance charitable activities in furtherance of a charitable purpose of the charity. A grantee organization is defined in subsection 149.1(1) of the Act to include a person, club, society, association or organization, but does not include a qualified donee.
To prevent organizations from acting as conduits in the making of a directed gift, paragraph 168(1)(f) of the Act was amended to apply to registered charities. Accordingly, the registration of a registered charity, registered Canadian amateur athletic association or registered journalism organization may be revoked if such an entity accepts a gift which was expressly or implicitly conditional on making a gift to another person, club, society, association or organization other than a qualified donee.
Whether a registered charity has accepted a gift that was implicitly conditional for the purposes of paragraph 168(1)(f) of the Act is a mixed question of fact and law, the determination of which can only be made on a case-by-case basis following a review of the facts and circumstances and related documentation.
The CRA is currently preparing guidance on these new measures.
Sylvie Danis
2022-095055
November 29, 2022
Additional Note: On November 30, 2022, the CRA released draft guidance on these new measures. The guidance document CG-032, Registered charities making grants to non-qualified donees, is available on the CRA’s website and is open for public feedback. Comments should be provided by January 31, 2023.
ENDNOTES
1 Budget Implementation Act, 2022, No. 1, 2022, c. 10, assented to June 23, 2022