Budget 2012 changes rules for category of foreign charities to whom the Federal Gov has made a gift

March 30, 2012 | By: .(JavaScript must be enabled to view this email address) Mark Blumberg
Topics: News

The Federal government in its 2012 budget has made changes to the category of qualified donee called “Gifts to Certain Charitable Organizations Outside Canada”. There are currently 9 foreign charities that are in a list “Gifts to Certain Charitable Organizations Outside Canada”.  You can see all 9 of them at:  http://www.cra-arc.gc.ca/chrts-gvng/qlfd-dns/qd-lstngs/gftsfrmhrmjsty-lst-eng.html The CRA information circular describes these organizations at: http://www.cra-arc.gc.ca/E/pub/tp/ic84-3r6/README.html   FInance is proposing to modify the rules to allow the CRA in consultation with Finance to recognize such organizations only if they are “• related to disaster relief or urgent humanitarian aid; or • in the national interest of Canada.”  This is a narrowing of the categoy - however, I think that having clarity will be helpful for CRA and it is possible that this category could have a large number of reputable international groups that are involved with disaster relief and urgent humanitarian aid added over the next few years.  Furthermore, the category “in the national interest of Canada” may apply to other groups such as those involved with international development (that is not disaster relief or urgent humanitarian aid) or other groups for example dealing with health care. Time will tell but there is a significant category of foreign prescribed universities and perhaps in a few years there will be a few dozen foreign charities added to the “Gifts to Certain Charitable Organizations Outside Canada” list.  Keep in mind that Canadians have already a lot of choice when it comes to international programs and over 5200 Canadian charities spent funds outside of Canada.  So there is no shortage of places to donate if you want to make this world a better place.

So essentially the CRA may designate, in consultation with Finance, a foreign organization for a 24-month period from when the Federal government has made a gift to the foreign organization, if
(i) the foreign organization is a charitable organization that is not resident in Canada,
(ii) CRA is satisfied that the foreign organization is (A) carrying on relief activities in response to a disaster, (B) providing urgent humanitarian aid, or (C) carrying on activities in the national interest of Canada, and
(iii) the foreign organization has applied to the Minister for designation under this subsection.


Organizations will have to apply for this status - presumably CRA will ask for information necessary to satisfy itself that the organization should be provided with such status.  Also this status can only be conferred after both CRA and Finance have given the go-ahead.


On page 435 of the Budget Finance notes:

“Gifts to Foreign Charitable Organizations
In general, donations made by Canadians to foreign charities are not eligible for the Charitable Donations Tax Credit or Deduction. However, a foreign charitable organization that receives a gift from the Government of Canada may register as a qualified donee under the Income Tax Act. As a qualified
donee, a foreign charitable organization may issue an official donation receipt for a gift received from a Canadian donor, entitling the donor to a credit or deduction in computing Canadian income or tax. A Canadian registered charity may also make a gift to a foreign charitable organization that is a
qualified donee.

Budget 2012 proposes to modify the rules for registering certain foreign charitable organizations as qualified donees. Foreign charitable organizations that receive a gift from the Government may apply for qualified donee status if they pursue activities:
• related to disaster relief or urgent humanitarian aid; or
• in the national interest of Canada.

After consultation with the Minister of Finance, the Minister of National Revenue will have the discretionary power to grant qualified donee status to a foreign charitable organization that meets these criteria. Qualified donee status will be made public, and will be granted for a 24-month period that
begins on the date chosen by the Minister of National Revenue, which normally would be no later than the date of the gift from the Government. Granting qualified donee status in these situations will ensure that Canadians receive tax relief for donations made to approved foreign charitable
organizations that carry out activities of significance to, and in the interest of, the Canadian public. The Canada Revenue Agency will develop guidance regarding the administration of this measure.

Foreign charitable organizations that have received qualified donee status under the existing rules will continue to be qualified donees until the expiration of the period of their current status.

This measure will apply to applications made by foreign charitable organizations on or after the later of January 1, 2013 and Royal Assent to the enacting legislation.”


NOTICE OF WAYS AND MEANS MOTION TO AMEND THE INCOME TAX ACT –
Annex 4
Gifts to Foreign Charitable Organizations (p. 475)

(42) That, for applications made by a foreign organization on or after the later of January 1, 2013 and the date of Royal Assent to the enacting legislation,
(a) subparagraph (a)(v) of the definition “qualified donee” in subsection 149.1(1) of the Act be replaced with the following:
(v) a foreign organization designated under subsection 149.1(26), and
(b) section 149.1 of the Act be amended by adding the following after subsection 149.1(25):
Designated foreign charitable organizations
(26) For the purposes of the definition “qualified donee” in subsection (1),
(a) the Minister may designate, in consultation with the Minister of Finance, a foreign organization for a 24-month period that includes the time at which Her Majesty in right of Canada has made a gift to the foreign organization, if
(i) the foreign organization is a charitable organization that is not resident in Canada,
(ii) the Minister is satisfied that the foreign organization is
(A) carrying on relief activities in response to a disaster,
(B) providing urgent humanitarian aid, or
(C) carrying on activities in the national interest of Canada, and
(iii) the foreign organization has applied to the Minister for designation under this subsection; and
(b) a foreign organization designated under paragraph (a) is deemed to have been registered by the Minister at the beginning of the 24-month period.

 

 

By the way there were changes in this category in the 2011 budget as noted in this quote from CRA:

http://www.cra-arc.gc.ca/gncy/bdgt/2011/qa20-eng.html#_Toc288650878a
Certain Charitable Organizations Outside Canada to which Her Majesty in right of Canada has made a Gift

1. What is the current status under the Income Tax Act of certain charitable organizations outside Canada to which Her Majesty in the Right of Canada has made a gift?

Charitable organizations outside Canada to which Her Majesty in Right of Canada has made a gift enjoy the same “qualified donee” status as registered charities, meaning they can issue official donation receipts for gifts that then allow donors to claim tax relief and as qualified donees they can receive funds from registered charities.

2. What are the new requirements for certain charitable organizations outside Canada to which Her Majesty in the Right of Canada has made a gift?

Budget 2011 proposes that these organizations be on a publicly available list maintained by the CRA in order to continue to be recognized as qualified donees. These organizations will also be required to keep books and records supporting any official donation receipts they issue, and provide these to CRA upon request.

3. What are the consequences if such an organization does not comply with these rules?

If a charitable organization outside Canada to which Her Majesty in the Right of Canada has made a gift fails to keep books and records supporting any official donation receipts it issues, and to provide these to CRA upon request, or is involved in the improper issuance of donation receipts, the CRA may suspend its receipting privileges or revoke its qualified donee status.

4. What are the requirements to be considered a qualified donee as a charitable organization outside Canada to which Her Majesty in right of Canada has made a gift?

To be considered a qualified donee as an organization outside Canada to which Her Majesty in right of Canada has made a gift, the federal department that made the payment, or the recipient organization itself, should forward the following information to the Charities Directorate, Canada Revenue Agency:
•a copy of the governing document of the foreign entity;
•a description of the foreign entity’s activities;
•a copy of the letter or certificate issued by the foreign authority granting the foreign entity charitable status;
•copies of correspondence, agreements, or other documents related to the Crown gift; and
•proof that the gift has been made (for example a copy of the cheque).

The Charities Directorate will then consider whether the foreign entity qualifies based on a two-part test. First, the organization must demonstrate that it was the recipient of a gift. Second, the organization must demonstrate that it would meet the requirements for registration as a charitable organization in Canada.

5. Is there a current list of these organizations?

Yes. The CRA Charities Directorate maintains a list of these organizations. It can be found through the Charities-related forms and publications pages.

Once the Charities Directorate has determined whether a gift has been made and whether the foreign organization would meet the registration requirements, it will provide written confirmation of its decision. If the organization meets the two-part test, its name will be added to the CRA’s public list.

6. Are books and records required to be kept in Canada?

No. These organizations may keep their books and records in their own jurisdiction but must make them available in Canada at the request of the CRA.

7. When do these new rules apply?

The rules will apply on or after the later of January 1, 2012, and Royal Assent of the implementing legislation. During the interim period, these organizations will continue to be eligible for qualified donee status based on the current rules.

8. Where will I find more information on the proposed measures?

As further information is developed, it will be available on the Charities and Giving Web pages.

 

Do you require legal advice with respect to Canadian or Ontario non-profits or charities?

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Charity Lawyer Mark Blumberg

Mark Blumberg is a partner at the law firm of Blumberg Segal LLP in Toronto and works almost exclusively in the areas of non-profit and charity law.

mark@blumbergs.ca
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