CRA's New Proposed Foreign Activities Guidance
July 10, 2009 (Updated March 3, 2010)
Canada Revenue Agency (CRA) has released a draft document called Consultation on the Proposed Guidance on Activities Outside of Canada for Canadian Registered Charities. Formerly known as "policy," CRA will now refer to administrative development as "guidance." The new guidance replaces RC4106, Registered Charities: Operating Outside Canada as well as any other previous policies regarding transfers to non-qualified donees. This document will be of interest to any charity involved either directly or indirectly in activities outside of Canada.
The Income Tax Act (ITA) requires a charity to devote all resources to the charitable activities of the organization. This requirement is called the "own activities test" which is accomplished in two ways:
- conducting the activities itself; or
- making gifts to qualified donees.
A charity can carry out the charity's own activities through staff (volunteers, directors and employees) or intermediaries. Working through an intermediary can occur in one of four ways:
- an agent is an individual or organization agreeing to accomplish specific activities on behalf of the charity;
- a joint venture is one or more organizations pooling resources to accomplish a charitable purpose;
- co-operative participants work side by side to complete a charitable activity by each taking responsibility for part of the project; and
- a contractor is an individual or organization hired by the charity to deliver goods or services.
When working through intermediaries a charity must meet the "own activities test" by proving de facto control over the programs carried out on behalf of the charity. The charity cannot be a passive funding body for non-qualified donees. This is often referred to as acting as a conduit. A conduit is a registered Canadian charity raising funds in Canada--for a non-qualified donee--with no control over the activities the money supports. Acting as a conduit violates the ITA which may result in revocation of charitable status.
Minimally, an enforced written agreement is required. Additional measures of control are necessary depending on the circumstances, including a thorough description of activities, ongoing instruction, monitoring and supervision, periodic transfers of funds based on demonstrated performance, separation of activities and funds from other partners and maintaining books and records in Canada.
CRA Feedback
CRA is seeking feedback on this proposed guidance. The deadline to CRA is September 30, 2009. CCCC will be responding to this guidance. Member charities are free to forward comments to CCCC for input to our submission. Please send any comments by August 14, 2009 to David Johnson, Director of Certification at david.johnson@cccc.org. CCCC members will be kept advised of developments.
To access the guidance, go to http://www.cra-arc.gc.ca/tx/chrts/plcy/cnslttns/ccrc-eng.html.
