The charitable sector has been waiting patiently, or maybe not so patiently, for the issuance by the Canada Revenue Agency ("CRA") of its final guidance on the ability of Canadian registered charities to make grants to organizations that are not qualified donees. This Guidance, "Registered charities making grants to non-qualified donees", was finally released on December 19, 2023 ("Guidance"). A holiday/New Year's gift to the sector?

By way of background, and as we reported in April 2022 and June 2022, changes were made to the Income Tax Act (Canada) ("ITA") in the spring of 2022, to enable charities to make disbursements to organizations that are not qualified donees, including foreign charities or non-profit organizations based in or outside of Canada, through the introduction of the new "qualifying disbursement" rules. This change provides an alternative option for how Canadian registered charities can carry out their purposes. However, how the CRA would implement these new rules was still open to question.

A glimpse into the CRA's approach was given when it released an earlier draft of the Guidance in late 2022. The CRA accepted public comments on the draft into the beginning of this year and had been working on finalizing it. Based on a preliminary look at the final Guidance, there have been significant changes from the earlier draft, especially to its structure. Of note is the inclusion of additional and revised definitions (particularly to the term "grant"), a new section on how the CRA interprets and applies the accountability requirements in the provisions of the ITA, and the diligence model for grant-making with an emphasis on risk. Unfortunately, the Guidance extends beyond the legislative framework in the ITA and imposes significant challenges on charities wishing to make grants to non-qualified donees, most notably with the requirements for assessing the risks of making a grant.

The Guidance follows on the heels of the introduction of Form T1441, Qualifying Disbursements: Grants to Non-Qualified Donees – the new form required to be included with a charity's T3010, Registered Charity Information Return, to disclose grants to non-qualified donees.

We are undertaking a deeper dive into the final Guidance and will report more fully in 2024.

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