Jeff Gray recently wrote a piece in the Globe and Mail on a quirky category of foreign charities who are given qualified donee status by virtue of being on the "List of registered foreign charitable organizations that have received a gift from Her Majesty in right of Canada". I have been getting calls from Canadian charities that conduct foreign activities and professional advisors wondering whether this has any impact on them. The short answer is no.
The slightly longer answer is that if your registered charity has in the past made a gift to one of the 8 or so organizations that were on the list then you now need to "direct and control" the funds and cannot make a gift to the foreign charity unless and until they are added back to the list. So this will probably have no effect on almost all 5500 Canadian charities that conduct foreign activities. It will also have no impact on other categories such as the approximately 500 foreign prescribed universities who have qualified donee status. As is often the case headlines don't provide the full story. The status only lasts for 2 years and it automatically ceases when that period has expired. In my discussions with CRA they advise that there is no policy change - they react to applications for these foreign entities. If they receive applications they will process them. If they don't receive applications from groups because those groups did not get a gift from a government department or did not put in an application then they cannot do anything about it. After discussion with a number of foreign entities it appears that various government departments are slow at providing approvals for the "gifts" which in some cases are only cheques for $100 or so. CRA may have some applications in the pipeline but because of the confidentiality provisions of the Income Tax Act they are not allowed to discuss that.
This story illustrates a few points:
1) the whole process around giving the gifts and this special status is anything but transparent. It was never transparent under any previous governments. Do we care if there is transparency? Why should Bill Clinton's foundation get special treatment? The only guess as to why a small number of groups get this status is that they have access to power. Not a compelling reason. Paul Waldie of the Globe and Mail covered this issue before: Ottawa gives Bill Clinton foundation special designation
2) for those who have had the status it is really wonderful. No real obligations and the ability to issue tax receipts just as any Canadian registered charity can. What I have always told clients is that it is a discretionary category and realize that the benefit may come to an end. Groups should consider other alternative strategies that can replace or can complement this status such as having a "Canadian Friends" organization. If you look at some of the organizations on the list they have Canadian foundations or affiliated charities etc. For those that feel fundraising in Canada is really important there are a number of ways to accomplish this, outside of this special category.
The CRA page on the "List of registered foreign charitable organizations that have received a gift from Her Majesty in right of Canada" currently says "There are currently no registered foreign charitable organizations that have received a gift from Her Majesty in right of Canada."
Here is a little background from CRA on the category:
"Charitable Organizations Outside Canada that Have Received a Gift from Her Majesty in Right of Canada Guidance
August 10, 2012
This guidance applies as of January 1, 2012, and replaces Policy Commentary CPC‑030, Foreign charities: Requirements for qualified donee status, and Information Circular IC84-3R6, Gifts to Certain Charitable Organizations Outside Canada.
The List of registered foreign charitable organizations that have received a gift from Her Majesty in right of Canada replaces the Attachment to IC84‑3R6.
A charitable organization outside Canada that has received a gift from Her Majesty in right of Canada (that is, the Government of Canada), and meets certain other requirements, may become a qualified donee for a specified period. This status allows it to be included on the list of qualified donees maintained by the Canada Revenue Agency (CRA), and to be eligible to issue official donation receipts to donors and to receive gifts from registered charities, during that period.
To provide information for potential donors to certain charitable organizations outside Canada.
To clarify how the CRA decides whether a charitable organization outside Canada that has received a gift from the Government of Canada meets the requirements for qualified donee status.
A charitable organization outside Canada that has received a gift from the Government of Canada (the federal government or its agents), may become a qualified donee under the Income Tax Act for 24 months from the date it received the gift. As a qualified donee, the organization can issue official donation receipts for gifts it receives during that period. Corporate donors can use these receipts to claim a tax deduction on their Canadian Corporation Income Tax Return and individual donors can use them to claim a tax credit on their Canadian Income Tax and Benefit Return.
To confirm whether a charitable organization outside Canada is or was a qualified donee as a result of receiving a gift from the Government of Canada, go to List of registered foreign charitable organizations that have received a gift from Her Majesty in right of Canada.
To add a charitable organization outside Canada to the CRA’s list of qualified donees, the federal government department or agent that made the gift, or the organization that received the gift, must send the following information to the CRA’s Charities Directorate:
a copy of the organization’s governing document;
a description of the organization’s activities;
a copy of the letter or certificate granting charitable status to the organization, from the relevant authority in the country in which the organization is established;
a copy of correspondence, agreements, or other documents related to the gift from the Canadian Government; and
proof that the gift was made (for example, a copy of the cheque).
The CRA will then use the following two-part test to decide whether the organization outside Canada is a qualified donee:
The information given must clearly show that the organization received a gift from the Government of Canada.
The organization must meet the Canadian common law definition of charitable, and generally be eligible for registration in Canada, if it were established in Canada.
The CRA will send a letter to the organization outside Canada confirming whether it meets both parts of the test. If it does, its name will be added to the list of qualified donees. If it does not, the CRA will explain its concerns in the letter and the organization may respond to these concerns. If the organization does not address these concerns to the CRA’s satisfaction, the CRA’s decision that the organization is not a qualified donee will be final. If the organization disagrees with the CRA’s decision and wants to take formal recourse, it must file an application for judicial review with the Federal Court of Canada.
To maintain its status as a qualified donee, a charitable organization outside Canada must meet certain requirements under the Income Tax Act. It is required to:
properly issue official donation receipts; and
keep books and records to support any official donation receipts it issues and provide these to the CRA upon request.
For more information about these requirements, go to Issuing official donation receipts and Books and records.
The CRA may apply sanctions that include suspending or revoking the organization’s receipting privileges if it is involved in the improper issuance of donation receipts, or does not provide the necessary records when asked.
If the organization receives a notice suspending or revoking its status, it can file an objection with the CRA’s Appeals Branch within 90 days after the day the notice was mailed. The objection must be in writing and give the reason(s) for the objection and all the relevant facts.
Income Tax Act, R.S.C. 1985 (5th supp.) c. 1, ss. 110.1(1)(a), 118.1(1), 149.1(1), 149.1(4.3), 168(1), 188.2, 230(2), Regulation 3501(1.1). "
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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.