CRA’s Guidance on Grants to Non-Qualified Donees Explained
In a significant move impacting the Canadian charitable sector, amendments to the Income Tax Act (ITA) in June 2022 introduced alternative options for registered charities to engage with non-qualified charities and organizations abroad. The new “qualifying disbursement” rules allow charities to make certain disbursements to non-qualified donees, and the Income Tax Regulations now mandate additional reporting obligations for disbursements exceeding CA$5,000 in a taxation year.
One of the key developments following these amendments is the release of the Canada Revenue Agency’s (CRA) Draft Guidance on registered charities making grants to non-qualified donees (Guidance CG-032) on November 30, 2022. While the Draft Guidance is still in its draft form, several key takeaways and insights can be drawn.
Key Takeaways:
- Opportunity Amidst Caution: Despite the Draft Guidance being in a draft form, charities can now make qualifying disbursements. However, caution is advised until the finalized guidance is released, expected in late summer or early fall 2023 at the earliest.
- Reporting Updates: The T3010 and T4033 are undergoing updates and are expected to be available shortly.
Understanding the Landscape: The Old Regime vs. The New Regime
The Old Regime: Before the amendments, charities had limited options, primarily focusing on their own activities or making gifts to qualified donees. Providing resources to non-qualified donees required strict adherence to CRA’s “direction and control” requirements.
The New Regime: The amendments introduced two routes for registered Canadian charities: continuing “own activities” or making a qualified disbursement. The latter allows disbursements to both qualified donees and grantee organizations (non-qualified donees) under specific conditions.
Draft CRA Guidance: Accountability and Risk Assessment
The Draft Guidance delineates accountability standards for eligible disbursements, underscoring the significance of showcasing that the recipient organization allocates the disbursement solely to charitable activities aligned with the charity’s declared mission.
Risk assessment is a crucial aspect, and charities are advised to evaluate the level of risk associated with each grant, with the guidance providing tools for accountability and risk mitigation.
Schedule for Publication of Conclusive CRA Guidance
The Draft Guidance underwent a public comment period until January 31, 2023, with the anticipated release of the finalized version later this year. The entire projected timeframe for the CRA to formulate guidance spans from 10 to 20 months since the enactment of the new legislation.
Moving Forward: Recommended Next Steps
While the Draft Guidance signals positive steps toward flexibility for registered charities, it’s crucial to remember that it is still in draft form. Charities interested in leveraging the new rules should proceed with caution until the CRA addresses public comments and provides further clarity on compliant granting to non-qualified donees.
At Northfield & Associates our expert teams guidance on compliance requirements. Our team understands Canadian charity law and can help ensure your organisation follows proper procedures.
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