The Charities and Not-for-Profit Law Section of the Canadian Bar Association appreciates that the Charities Directorate of the Canada Revenue Agency is offering guidance to the charitable sector on the amendments to the Income Tax Act in Budget Implementation Act, 2022, No. 1 related to grants to non-qualified donees. The use of narrative examples and checklists is particularly useful, the letter reads. But there is room for improvement on the guidance’s accessibility and application to the charitable sector.
One concern is that the guidance may go beyond the objectives of the legislation when it comes to the risk assessment matric and related accountability measures. It looks more like an attempt to make new law, because it includes accountability requirements that were removed from the Budget Implementation Act as being considered too administratively onerous for charities “We suggest that there should be greater emphasis on the fact that it is not law, but rather information to help a charity determine best practices to comply with the legislation.”
The Section says if the Draft guidance is to retain the risk assessment framework, the wording needs to be changed significantly. “It would help to offer specific information about what precisely is expected, including a ‘calibration’ of the circumstances of individual charities and their relationships with their grant recipients, particularly with respect to vouchers and reporting.”
The CBA Section also notes that the Draft guidance in its current form uses terms and words that are not included in the legislation’s relevant provisions or are used differently. “For example, the Draft guidance uses ‘grant’ terminology, while the definition of ‘qualifying disbursement’ in the ITA uses the term ‘gift.’” This should be fixed and made easier to understand by including concrete examples of a variety of circumstances.
On directed giving the CBA Section says the Draft guidance causes confusion when read with the section of the ITA that gives the CRA authority to revoke a charity’s registration if it accepts a gift “the granting of which was expressly or implicitly conditional on the charity […] making a gift to another person, club, society, association or organization other than a qualified donee.”
Instead of explaining what an implicit condition is, the Draft guidance tells charities they respect the new provision so long as they retain authority over how they use their resources. “While it is helpful to clarify that charities will not be prohibited from fundraising for programs that involve non-qualified donees, the CBA Section is concerned that the Draft guidance does not align with the wording of the ITA,” the letter reads.
Recognizing the complexity inherent in enforcing such a rule, the Section suggests amending section 168(1)(f) of the ITA to clarify that it doesn’t apply where the gift to the non-qualified done is a qualifying disbursement.
Last but not least, the CBA letter expresses hopes that the CRA’s guidance could include information for foundations whose purpose is granting to qualified donees. “The Draft guidance is silent on whether these charities are required to amend their purposes to offer grants to non-qualified donees. While we expect this will be the case, it is unknown if CRA will accept this sort of omnibus purpose, or if it is necessary to include a lengthy list of purposes in the charity’s proposed granting areas,” the latter being inconsistent with Parliament’s intent of making these changes.