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