As many of you already know, in June 2022, the Income Tax Act was amended to include a new way for registered charities to work with non-qualified donees: making a grant to grantee organizations. The grant to grantee organizations are considered to be a form of qualifying disbursement (also a new term introduced to the ITA in 2022). Qualifying disbursements also now include gifts to qualified donees. As part of the new rules, registered charities must report on all qualifying disbursements it makes on the annual T3010 filing. This includes reporting on all grant to grantees.
As a result, CRA has updated the T3010 to (among other things) allow charities to meet these reporting requirements. We are seeing that with the new changes to the T3010, charities are making many mistakes in filling out the form, especially when it comes to the new qualifying disbursement rules. Here is some information on the new questions on the T3010 and how a registered charity should be responding to these new questions. For those who are interested in more information on the T3010, we are running a half-day course on the T3010 on April 17th, and you can find out more here.
Specifically, a registered charity must list the number of grants to grantees that were under $5,000 (line 5842) and list the total amount of funds it granted to grantees under grants less than $5,000 (line 5843). Keep in mind that if a charity has given out multiple small grants to the same grantee in a year, if the total amount given to the grantee is more than $5,000, the grantee must be listed in the new T1441 (more on this form below). For example, if a charity gave exactly 3 grants of $3,000 each to 3 different grantees in a given year, the charity would enter ‘3’ in line 5842 and ‘$9,000’ in line 5843. However, if that charity gave out exactly 3 grants of $3,000 each to the same grantee in a given year, it would leave lines 5842 and 5843 blank as they would not have given any grantee less than $5000.
Instead, the charity would have to report on the grants on the new line 5841, which asks if the charity has given out grants totaling more than $5,000 to any grantee organization. If any charity answers ‘yes’ to line 5841, then they must also complete the new Form T1441 – Qualifying Disbursements: Grants to Non-Qualified Donees (Grantees). A registered charity needs to disclose the following information in the new T1441 for each grant it made to a grantee that the charity gave more than $5,000 in that year:
- Name of the grantee
- Purpose of the grant
- the amount of the grant (including separate lines for the non-cash amounts (eg. for supplies or equipment) and cash amounts); and
- if outside of Canada, the country code for where the grant activities occurred.
Keep in mind that, if a charity has given more than one grant to the same grantee, it still has to list out each grant separately in the T1441. In the example above, the charity would have to complete the T1441 with 3 separate grants, listing the same grantee for each grant.
We find it interesting that the T1441 only requires a description of the purpose of the grant. For those who do not know, the new grant to grantee rules state that a registered charity can only give out a grant that furthers one of the charity’s charitable purposes and the charity must ensure that the funds are used exclusively for charitable activities that fall within the charity’s charitable purposes. At a minimum, registered charities should be identifying their charitable purpose that the grant is furthering in the T1441 for each grant. In addition, charities should include a brief description of the charitable activities that the grant is funding in either the Ongoing Programs and New Programs in C2 as well.
Please also note that the word “grant” is used a lot in the charitable sector, sometimes in reference to a structured arrangement under the direction and control rules. For those who are not familiar with charity law or the new qualifying disbursements, it is easy for them to mistakenly answer “yes” to line 5841 when the charity is not in fact doing any grants to grantees. In order to minimize confusion registered charities may need to speak with their accountants/bookkeepers, as well as other stakeholders, to ensure that they understand that now a “grant” has a legal meaning and implication for registered charities, and a charity should generally avoid saying it is making a ‘grant’ unless it is actually making a grant to a grantee organization and then reporting it on the T3010 and following CRA’s guidance.
We have also seen groups listing qualified donees in the grant to grantee reporting and that is also not accurate.
We also have seen on the T1441 Qualifying Disbursements: Grants to Non-Qualified Donees, charities incorrectly completing the form and confusing the amount of cash and non-cash disbursements.
As well, note that CRA is asking on the T1441, “If outside Canada, each country code and country where the activities were carried on,” and we note that some charities are including provinces, but that is not what is being asked for.
CRA also notes, “If your charity made several grants to the same grantee, repeat the name of the grantee as many times as needed and report each grant individually.
Include all grant resources that your charity disbursed during this fiscal period, even if the grant activities are not yet completed.” Therefore, according to this instruction, one would list each grant.
For more information on the new rules, please see CRA’s guidance on making grants to non-qualified donees and our article, New CRA Guidance on Grants to Grantees: Some preliminary comments.
As mentioned above, we will be doing a course, Fundamentals of the T3010 and Transparency for Canadian charities, on April 17th, you can register for the course here.