The CRA has now published for comment its draft Guidance on foreign charitable activities (see www.cra-arc.gc.ca/tx/chrtas/cnslttns/ccrc-eng.html). This draft Guidance, which is designed to replace current Guide RC4106 and the discussion in Registered Charities Newsletter No. 20, gives more details than its predecessors and is intended to be easier to understand.
The draft Guidance confirms that a Canadian charity must operate (inside and outside Canada) either by carrying out its own activities or by making grants to qualified donees. Most of the draft Guidance deals with ways in which a Canadian charity can work through an intermediary yet still be carrying out its own activities.
Although the draft Guidance was not designed to convey a substantially different approach, it does contain some helpful clarifications. For example, the CRA seems to be backing off its suggestion that a Canadian charity must always obey non-Canadian laws in order to be a Canadian charity.
In the past, some charities felt that the CRA was overly prescriptive in pushing charities into particular arrangements with foreign intermediaries. The draft Guidance goes to great lengths to present all of the general approaches (agency, joint venture, co-operative partnership and contract for services). Instead, the CRA stresses that the choice of arrangement may be less important than the reality of Canadian direction and control over the charitable activity carried out through the intermediary. The draft Guidance also confirms that the CRA continues to apply what has been referred to as the “charitable goods policy” – the CRA will permit goods which can reasonably only be used in charitable activities to be transferred to a suitable trustworthy intermediary without the usual indicia of direction and control on the part of the Canadian charity. We still recommend charities distributing such goods enter into a contract requiring the recipient to use the goods for charitable activities and to provide reporting.
All charities that carry out activities outside of Canada should review the draft Guidance carefully. The CRA Charities Directorate invites comments on it by September 30, 2009. We would be pleased to assist in preparing and submitting comments on behalf of Canadian charities with special situations that do not seem to fit into the draft Guidance. We also recommend that Canadian charities funding activities through intermediaries obtain periodic legal advice on the structures that they are using. The CRA’s approach on this issue continues to evolve. We see a constant trickle of new clients seeking advice on how to respond to CRA proposals to revoke charitable registration for not taking sufficient care in documenting and supervising activities carried out through intermediaries.