Recent amendments to the Income Tax Act prohibit charities from receiving donations that are conditional on the charity making a gift to a non-charity. Now that charities can give grants to non-charities, this blanket prohibition has created confusion about whether and how charities can accept gifts with a donor preference. CRA’s final guidance on this point is yet to be released, but CRA indicates that it is a case-by-case determination that depends on the facts and documentation. CRA’s draft guidance recommends that charities clearly communicate to donors that (1) they can indicate a preference, but the charity retains ultimate authority over its resources; and (2) donations will not be returned to the donor if the resources will not be used according to the donor’s indicated preference.

Background: Income Tax Act

The Income Tax Amendments (ITA) in Bill C-19, Budget Implementation Act, 2022, No. 1 that allowed charities to work with non-charities through qualifying disbursements also changed ITA language addressing “expressly or implicitly conditional” donations.

Before the amendments, section 168(1)(f) of the ITA prohibited registered amateur athletic associations or registered journalism organizations from accepting “a gift the granting of which was expressly or implicitly conditional on the association or organization making a gift to another person, club, society, association or organization.”

The amendments expanded section 168(1)(f) to prohibit registered charities, amateur athletic associations and registered journalism organizations from accepting “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].

In other words, a charity cannot accept donations that are conditional on the charity disbursing those funds to a non-charity.

The question of how CRA will interpret and apply this section has caused some concern for charities. It is common for donors to indicate a preference for how the charity will use their donation, but the consequence of revocation has given charities pause. It also begs the question – how can charities receive donations for specific projects and activities where the charities work with a non-qualified donee (non-charity)?

Interpreting the Income Tax Act: What We Know So Far

In July 2023 CRA released the discussion items from the Canadian Tax Foundation’s Fall 2022 CRA Roundtable Discussion. One question asked specifically about how CRA would view a donation with a letter from the donor about her hope that the gift will be transferred to a specific grantee organization – would CRA call that implicitly conditional?

CRA replied that whether a gift is implicitly conditional “…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.”

CRA also noted that it is currently writing guidance on the topic.

The current guidance is in draft form (CG-032, Registered Charities Making Grants to Non-Qualified Donees). It addresses directed donations and acting as a conduit and recommends that charities communicate two key messages to donors:

1. Donors can indicate a preference for how donations are applied, but ultimate authority on use of resources belongs to the charity;
2. Donations will not be returned to donors if the charity does not use it in your preferred way.

The draft guidance explains that the ITA amendments are meant to prevent charities from becoming conduits, such as “where a charity solely exists as a fundraising arm in Canada of an affiliate organization in another country.”

The final guidance has not yet been released, but we understand that stakeholder feedback is being used to revise the draft which will likely be available this fall.

Additional Resources

For more on qualifying disbursements, see

CRA Updates T3010, Adds New Form T1441 for Qualifying Disbursements (15 May 2023)

CRA Draft Guidance on Making Grants to Non-Qualified Donees (1 December 2022)

Qualifying Disbursements

Sample Granting Forms for Non-Qualified Donees

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