In the midst of many global crises, Canadian charities are often involved in providing humanitarian aid to those in need. Because of the urgency involved in responding to events such as natural disasters, wars, or political upheaval, charities often prioritize the practical actions that they can take to alleviate suffering. Nevertheless, charities and their advisors need to be aware of the legal context in which they operate – this includes compliance with Canadian law as it applies to charities and the use of their resources. Below are three key issues that charities should consider before providing humanitarian assistance and which should be part of a charity's internal compliance processes.
1. Have a Valid Charitable Purpose
A Canadian charity that intends to provide humanitarian aid must have a charitable purpose that allows for this activity.
Every registered charity in Canada will have one or more charitable purposes which set out what the charity intends to do. The directors of a charity need to ensure that all of their activities fall within the scope of its purposes. Failure to do so could put the registered charitable status of the charity at risk. Further, for charities that are incorporated, directors could be exposed to liability, because provincial and federal not-for-profit legislation requires directors to act in accordance with their corporation's articles of incorporation, where their charitable purposes are set out.
Over time, a charity may evolve, particularly as its programs grow or as donors prioritize certain aspects of a charity's mission. For example, a charity may have an educational purpose to provide education to children in remote communities abroad. If an earthquake were to occur in one of these communities, providing medical supplies might not be sufficiently related to this charity's charitable purposes, depending on the circumstances. Therefore, directors are encouraged to review their organization's charitable purposes before engaging in any humanitarian activities, to make sure that these activities fall under a valid charitable purpose.
If an organization does want to apply for charitable status or change a charitable purpose on an urgent basis in response to an emergency, the CRA has indicated that it may be possible to expedite these applications.
2. Use Resources for "Own Activities" or "Qualifying Disbursements"
Under the Income Tax Act (Canada) and in accordance with guidance from the CRA, registered charities may only use their resources in two ways: (1) to carry out the charity's own activities or (2) to make qualifying disbursements.
If a charity does not have its own staff or infrastructure in a particular area where humanitarian aid is needed, it could choose to work with an intermediary. To be considered to be doing its own activities, the charity must "direct and control" the use of the resources that it provides to the intermediary. On a practical level, this means that a charity must make decisions and set parameters in which the intermediary may operate. An intermediary agreement is often very detailed and should set out where, when and how humanitarian activities will be carried out, as well as who the beneficiaries will be and what goods and services the charity's resources will buy. Details are set out in the CRA's guidance on Canadian registered charities carrying on activities outside of Canada.
Alternatively, a charity may make a qualifying disbursement, also referred to as a grant. When a charity makes a grant to an eligible organization (referred to as a "grantee" or "grantee organization"), it is supporting that grantee's own activities. A charity making a grant must ensure that the grantee is using the grant to further the charity's charitable purposes and must evaluate the level of risk that funds might not be exclusively used for its charitable purposes. Certain activities might be considered "low-risk" such as when a charity transfers charitable goods (e.g. antibiotics or other non-cash resources that are likely to be used only for charitable purposes) to a grantee. However, making a grant in a country or region outside of Canada where there is violent conflict or security concerns is considered to be a high risk activity by the CRA. After a charity determines the level of risk involved in a project, it must adopt due diligence measures to mitigate the risk. Therefore, a charity making grants to grantees in support of humanitarian activities should carefully consider the requirements for grants set out in the CRA's guidance on this topic.
3. Comply with Federal Anti-Terrorist Financing Legislation
Depending on the nature of the conflict or disaster, humanitarian aid may be needed in areas controlled by listed terrorist entities. Charities may face many challenges operating in these areas, not the least of which is potential exposure to criminal liability if even a portion of their resources ends up in the hands of terrorist entities. As of June 2023, the federal government has amended the Criminal Code to make it clear that charities and their directors will not be at risk of charges of terrorist financing if they are carrying out humanitarian assistance activities that fall within one of two legislative exceptions. A charity may either (1) qualify under a blanket exception if they carry out humanitarian assistance activities under the auspices of an impartial humanitarian organization in accordance with international law while using reasonable efforts to minimize any benefit to terrorists groups, or (2) apply for and (if qualified) receive a limited term authorization from the Minister of Public Safety and Emergency Preparedness. The federal government is expected to provide further details about these exceptions and the application process. A PDF version is available to download here.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
