Most charities prefer to receive funds that are not restricted so that the funds can be used where needed most. However, there are times when a charity chooses to accept funds that are directed to a specific ministry or program (e.g., a short-term mission project or a building fund).
Charities should exercise caution in accepting gifts with restrictions. They must recognize that when accepting such gifts, the funds become “special purpose trust funds,” which means they can only be used as designated. A charity cannot change the designation or go back to the donor to ask permission to change the restriction. Only a court approval has the power to make this change.
A charity can avoid this undesirable, but surprisingly common, situation by creating a restricted gifts policy and informing donors at the time they donate that gifts with conditions will only be accepted if those conditions fall within the restricted giving policy.
Note: Although restricted gifts are also sometimes referred to as “designated gifts,” the latter has a different technical meaning under the ITA and refers to a type of gift made between registered charities not at arm’s length.