On June 20, 2011, CRA released Guidance CG-004 Using an Intermediary to Carry out a Charity's Activities within Canada. This Guidance is intended to complement CRA’s previously-released Guidance CG-002, Canadian Registered Charities Carrying out Activities Outside of Canada, on which we reported in the July 2010 issue of this Newsletter (available here). Both documents address the same basic issue: how can a charity work with organizations (whether inside or outside Canada) that are non-qualified donees (not registered charities) in order to carry out its charitable activities. Charities that conduct activities within Canada using third parties, such as non-profits that are not registered charities, will need to review the new Guidance carefully to ensure compliance.
The Guidance confirms that a registered charity is only permitted to use its resources in two ways, whether inside or outside Canada: (i) on its own activities (those which are directly under the charity's control and supervision, and for which it can account for any funds expended); and (ii) on gifts to qualified donees. The Guidance focuses on how a charity can meet the first requirement when working in Canada with entities that are not qualified donees.
The new Guidance largely follows the content of the Guidance on Foreign Activities. It first sets out when a charity will be considered to be carrying out its own activities. A charity will be considered to be carrying on its own activities when it uses its own staff or volunteers to carry out an activity, and when it works with an intermediary pursuant to an agreement providing for direction and control over the use of the charity’s resources. It also confirms that a charity will be considered to carry on its own activities when transferring goods to a non-qualified donee that are of a nature that they can only reasonably be used for charitable purposes (e.g., medical supplies, school supplies), provided that the charity has investigated the non-qualifed donee and reasonably expects that the entity will only use the property in this way.
The Guidance sets out the various structures that can be employed when working with an intermediary – e.g., agency relationships, joint ventures, contracts for services – and sets out the elements that should be included in a written agreement (and followed in practice) to ensure that the charity maintains direction and control. It also confirms the record-keeping requirements that apply when a charity works with an intermediary.
Charities have always been subject to these requirements when working with intermediaries within Canada, but it is now particularly important that charities review their current arrangements and agreements to ensure that they comply with these rules. CRA can be expected to apply the requirements in the new Guidance when auditing a charity’s domestic activities.
A copy of the new Guidance is available here.