Granting gracefully: A practical guide for charities making grants to non-qualified donees


Following a period of public feedback, on December 19, 2023, the Canada Revenue Agency (CRA) posted its guidance on qualifying disbursements for registered charities making grants to non-qualified donees. Non-qualified donees are organizations, whether operating in Canada or internationally, that contribute to charitable activities, but do not have registered charity status with the CRA.

This guidance, titled CG-032 Registered charities making grants to non-qualified donees, clarifies the CRA's interpretation of the new Qualifying Disbursement regime introduced in June 2022. The release of this final guidance follows a yearlong consultation process, signaling a significant milestone in the implementation of the new regime.

Why It Matters

This guidance is relevant to all Canadian registered charities that make or intend to make grants to non-qualified donees, both within and outside Canada. It is crucial for charities, as it impacts how they can use their resources to fulfill their charitable purposes.

Registered charities often desire to support causes and initiatives that might lead them to make grants to non-qualified donees. While such grants might further the charity’s charitable purposes, they carry risks and require careful consideration.

The 2022 changes to the Income Tax Act (ITA) aimed to recognize the value non-qualified donees provide by allowing charities to make grants to them. This opened up a new mechanism for charities to support non-qualified donees; previously, they had to work with non-qualified donees as intermediaries, whereby the charity maintains ongoing direction and control of the activity that the non-qualified donee performs on its behalf. Critically, in this intermediary arrangement, the activity must be the charity’s own. Under this new regime, a charity can support the grantee’s own activities, provided the charity shows that it meets the ITA requirements set out in this guidance. These changes bring Canada more in line with other jurisdictions, allowing Canadian charities greater flexibility to operate internationally.  

The Guidance

As noted in the guidance, the relevant part of the ITA reads as follows:

qualifying disbursement means a disbursement by a charity, by way of a gift or by otherwise making resources available, (a)  to a qualified donee, or (b) to a grantee organization, if

  • (i) the disbursement is in furtherance of a charitable purpose (determined without reference to the definition charitable purposes in [subsection 149.1(1) of the Income Tax Act]) of the charity,
  • (ii) the charity ensures that the disbursement is exclusively applied to charitable activities in furtherance of a charitable purpose of the charity, and
  • (iii) the charity maintains documentation sufficient to demonstrate
    • (A) the purpose for which the disbursement is made, and
    • (B) that the disbursement is exclusively applied by the grantee organization to charitable activities in furtherance of a charitable purpose of the charity […].

The application of these rules is as yet unclear. However, the guidance provides a recommended step-by-step process which, when followed, will constitute compliance with the ITA in the eyes of the CRA. The process is explained in brief below. For comprehensive assistance on your matter, contact a member of Fillmore Riley LLP’s Charities & Not-for-Profits Group.

Preliminary Step: Define the Relationship

While not a formal requirement of the CRA's process, it is prudent for charities to contemplate, at the outset of their relationship with a non-qualified donee, whether the most effective approach would be to provide a grant under the qualifying disbursement rules or to involve the non-qualified donee as an intermediary. Importantly, charities are not bound by their initial decision regarding which rule to apply. The CRA recognizes that relationships can evolve, allowing charities to transition their relationship with a non-qualified donee from an intermediary to a grantee relationship.

Step 1: How Does the Grant Activity Further a Charitable Purpose?

As a starting point, the guidance states that a charity's grants must advance at least one of its own charitable purposes as outlined in its governing documents. This means that a grant by a charity that advances a charitable purpose generally (but is not one of the charity's own purposes) is not considered a legitimate grant under this framework.

This requirement may necessitate a charity to review and potentially amend its charitable purposes before making grants to non-qualified donees. Any amended purposes must also be approved by the CRA before they are implemented.

Furthermore, the grant's recipient must engage in a charitable activity that aligns with public policy for granting activities within and outside Canada, passes the public benefit test, avoids conferring an unacceptable private benefit, and does not support terrorist activities.

The CRA’s definition of acceptable charitable purposes has evolved over time. Charities interested in making grants to non-qualified donees may need to seek legal counsel to ensure their current purposes permit the intended granting activities.

Step 2: What is the Grant’s Risk Level?

The CRA recommends that the charity conduct a risk level assessment for each grant it is considering providing to a non-qualified donee based on a non-exhaustive list of factors. To this end, the guidance provides a matrix that serves as a guideline to explain these risk factors. The risk factors set out in this matrix are: (1) the charity’s experience, (2) the grantee’s experience, (3) the purposes and governing documents of the grantee organization, (4) the governance structure of the grantee organization, (5) the grantee’s regulation and oversight, (6) private benefit concerns, (7) the grant activity, (8) the grant amount, (9) the nature of resources granted, and (10) grant duration. With each risk factor, the matrix sets out indicators of low, medium and high risks, which charities should find helpful in identifying the level of risk that might be associated with the various grants that they are considering making to non-qualified donees. This means that the charity should be able to demonstrate it has ample knowledge of the activities, governance, and inner workings of the proposed grantee. Charities are expected to obtain this information by carrying out appropriate due diligence on each potential grantee organization.

The guidance also provides examples of significant changes in grant conditions. Here, it is explained that if there is a significant change in grant conditions, then the charity should assess whether the grant’s overall risk level has changed, and work with the grantee to adjust the grant’s terms accordingly.

Step 3: Determine Due Diligence Level

Next, the CRA recommends that the charity determine the required level of due diligence and accountability tools that they need to apply to the grantee. This is to be based on the grantee’s risk level as determined in Step 2; the use of accountability tools will be limited where there is a low risk, moderate where there is a medium risk, or extensive in a high-risk situation.

The CRA’s recommended accountability and risk assessment tools for this step are:

(1) conducting research and review of grantee, which involves learning about the grantee, including their purposes, programs, history, reputation, and members, through means such as research, visits, meetings, and letters of reference;

(2) including a detailed description of grant activity in a written agreement between the charity and prospective grantee, to ensure collaboration and agreement on a shared understanding of the grant’s purpose and terms;

(3) having a written agreement with the grantee, documenting the grant. This is particularly advisable for large grants (more than $5,000 and/or on a recurring basis). This may not be necessary for non-recurring grants of $5,000 or less, but some form of documentation is recommended even in those circumstances;

(4) outlining a reporting plan with the grantee, whereby they provide periodic reports to track and document how they are using the resources granted to them;

(5) transferring resources according to a transfer schedule, in high-risk or longer term situations, allowing the grantee access to the funds in periodic instalments rather than one lump sum;

(6) asking the grantee to separately track the granted funds, to ensure that these are kept clearly separate from the grantee’s other funds and their use is clearly documented.

The guidance provides recommended steps to be taken in each of these steps, depending on the identified level of risk the grantee presents. While the list is non-exhaustive and the suitability of each tool will depend on the nature of each grant, it is intended to assist charities to determine which accountability tools they should consider using, and the extent of that use, with respect to each grant to a non-qualified donee.

Step 4: Apply Accountability Tools

In this step, the guidance indicates that charities are encouraged to work with the non-qualified donee when applying the accountability tools from Step 3.

Step 5: Document Due Diligence Throughout Grant’s Duration

The guidance notes that, as a reminder, charities are required under the ITA to keep adequate books and records. These must be sufficient to allow the CRA to determine whether they are operating in accordance with all applicable legal requirements. Failure to do so may expose the charity to the CRA’s compliance measures, including education letters, compliance agreements, sanctions, or in the most severe cases, revocation of registration.

For the purposes of the guidance, this means that the books and records must allow the CRA to determine whether the charity’s grants meet the accountability requirements, (2) the grantee’s use of the charity’s resources can be verified (for instance, through appropriate supporting documentation), and (3) the grantee continues to use the granted resources for the purposes and activities set out in the grant’s terms.

Special Granting Topics

In addition to the above steps, the guidance also speaks specifically to several special topics on granting. These include limits, directed gifts and conduits, reporting grants, pooled grants, charitable goods, real property, disaster or emergency relief, anti-terrorism considerations, and grants inside and outside Canada. In brief, the guidance provides as follows:

Qualifying disbursement limit – charitable organizations

The ITA stipulates that a charity classified as a "charitable organization" must disburse no more than 50% of its income as gifts to qualified donees. Exceeding this limit could result in the charity being reclassified as a public foundation. However, there is no restriction on the portion of its income a charitable organization may dedicate to making grants to non-qualified donees, and this does not impact its classification as a charitable organization.

Directed gifts and acting as a conduit

The anti-directed giving rule prohibits a charity from accepting or soliciting a gift on the explicit or implicit condition that the charity will subsequently gift it to a specific non-qualified donee. Any violation of this rule may result in the charity losing it charitable status.

In the guidance, the CRA provides the following examples of an explicitly conditional gift and an implicitly condition gift:

An explicitly conditional gift occurs when a donor indicates that the registered charity must use a gift to grant money to a specific non-qualified donee and that the funds must be returned to the donor if this is not done.

An implicitly conditional gift occurs when charity includes a non-qualified donee’s name in its own name, purposes, or other formal documents, potentially making any funds received from a donor implicitly conditional on the charity granting it to the named non-qualified donee.

To comply with the anti-directed giving rule, the CRA advises charities to maintain control over how their resources are used and to clearly communicate this to donors. This may be done, for instance, by including a message on the charity's website and in communications with donors or stating that the charity ultimately decides how donations will be used and that donations will not be returned if the charity does not use them according to a donor's preferences.

The guidance also clarified that the anti-directed giving rule does not prevent a charity from using a donation to carry out its own activities through a non-qualified donee intermediary, as long as the charity maintains control over how its resources are used. If a charity is concerned that a gift may be conditional on working with a non-qualified donee on a project, it may be less risky to engage the non-qualified donee as an intermediary rather than providing a grant directly to them.

It should be noted that, while the guidance provides advice on this topic, it is not law but rather a recommendation. The anti-directed giving rule in the ITA is broader than the CRA's interpretation in the guidance.

Reporting grants

In circumstances when a charity provides non-cash grants, they must be able to determine the fair market value of these non-cash grants in order to meet its reporting requirements and fulfill its disbursement quota.

In 2022, the Income Tax Regulations were amended to specify information that must be included in a charity's public information return for a taxation year. This includes disclosing the name of each grantee organization that received total qualifying disbursements exceeding $5,000 from the charity in the taxation year, along with the purpose of each qualifying disbursement and the total amount disbursed to each grantee organization.

If a charity gives more than $5,000 in cash or non-cash grants to a grantee in a taxation year, it must report specific details for each applicable grantee in its T3010 Registered Charity Information Return. This includes the name of the grantee, the purpose of each grant, and the total amount granted to the grantee in the taxation year. The charity must also provide information on the T3010 about the location of the grant activity. When a charity gives a grant totaling $5,000 or less in cash or non-cash grants to a grantee in a taxation year, the T3010 requires reporting the total number of these grantees and the total amount of all these grants.

The grant information reported in the T3010 is made available to the public, including the names of grantees that received more than $5,000 from the charity, regardless of whether the grantees operate inside or outside Canada. Charities can request that certain information not be made available to the public if its release would endanger the charity, the grantee, their staff, or volunteers.

Pooled grants

A charity might consider pooling its resources with multiple organizations, known as grantors, when making a grant. Joint initiatives like pooled grants operate differently than individual granting arrangements. It is recommended that the charity enter into a written agreement with all parties involved in pooled grants. This may not always be possible, and alternative accountability arrangements may be acceptable. In those circumstances, the guidance details specific accountability considerations for pooled grants. In general, however, the guidance recommends that these should be approached cautiously.

Granting charitable goods

When a charity is transferring charitable goods exclusively, it is typically viewed as a low-risk activity because the non-cash resources are likely to be used for charitable purposes. For instance, medical supplies such as antibiotics and instruments are likely to be used for treating the sick, while school supplies like textbooks are likely to be used to advance education. Nonetheless, charities should remain mindful of other factors that may necessitate additional due diligence. The guidance does, however, offer specific accountability considerations for granting charitable goods.

Granting real property

A charity may consider granting real property to a grantee, such as by transferring property title or providing funds for a grantee to purchase or renovate real property. However, in most cases, the charity is not allowed to transfer the title or ownership of real property to a non-qualified donee, including local organizations or government bodies, as the land and buildings might be used for non-charitable purposes. Nonetheless, a transfer of real property might be acceptable as a grant to a grantee if the charity complies with all legal requirements.

Granting real property is deemed high risk because it is challenging for the charity to ensure that the property will continue to be used for its charitable purposes once it is granted. The charity should evaluate whether the real property may be used for non-charitable purposes, potentially providing an unacceptable private benefit. The guidance provides additional accountability considerations for granting real property.

Grants and anti-terrorism considerations

A charity must ensure it doesn't support terrorism, including by granting to individuals or groups involved in terrorist activities. This includes compliance with the Criminal Code's humanitarian exemption and authorization regime.

Charities can lose their registration if they provide resources to entities engaged in terrorism. Individuals with a history of supporting terrorism can't hold key positions in charities. Charities must also adhere to regulations prohibiting funding or facilitating terrorism.

Grants inside and outside Canada

A charity can conduct its activities both within and outside Canada, and it can also provide grants to organizations operating in both locations.

However, a charity's purposes and activities must always comply with Canadian law. Before granting funds to organizations operating outside Canada, the charity should familiarize itself with the local laws where the grant activities will occur and understand how these laws might impact the grant.

Although most activities deemed charitable in Canada are also considered charitable abroad, Canadian courts have noted that some activities deemed charitable in Canada may not be considered charitable under Canadian law if carried out in another country. For instance, while it is charitable to provide a grant that enhances the effectiveness and efficiency of Canada's armed forces, it is not considered charitable under Canadian law to support the armed forces of another country.

Regardless of whether grant activities occur inside or outside Canada, they must not contradict officially declared and implemented Canadian public policy.


The guidance — and new regime — is a significant step for Canadian charities. It affords them greater flexibility in their relationship with non-qualified donees, allowing them to provide grants that will support the donees own activities, rather than simply using the donee as an intermediary to perform the charity’s own activities. However, in order to ensure compliance with the ITA, the CRA recommends that charities providing grants to non-qualified donees follow a detailed step-by-step process. Non-compliance could result in various measures being taken by the CRA, including loss of charitable registration. This highlights the importance of receiving professional legal advice prior to making grants to non-qualified donees.

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