1. Charity Law Information Program (CLIP) CRA’s Foreign Activities Guidance and Dealing with Non-Qualified Donees September 15, Mark Blumberg, Blumberg Segal LLP
Production of this workshop and materials was made possible by a financial contribution from the Canada Revenue Agency

2. Introduction Legal information not legal advice
Views expressed are my own
Questions during and at end
Review of handout – evaluation form
Logistics and timing 2

3. Overview Who we are Work outside charitable area
Charitable Sector and international activities
Income Tax Act rules and CRA guidance on foreign activities
Discussion on new consultation document on foreign activities 3

4. Who We Are – Capacity Builders
The Charity Law Information Program (CLIP) provides training, workshops, webinars to charitable organizations to enhance their understanding of their obligations under the Income Tax Act as well as improve governance and ethics
Capacity Builders is a division of the Ontario Community Support Association (OCSA) and it runs CLIP
CLIP Communiqué
x 232 or 4

5. Who We Are - Blumbergs
Blumberg Segal LLP is a law firm based in Toronto, Ontario
Mark Blumberg is a partner at Blumbergs who focuses on non-profits and charities
Assists charities from across Canada with Canadian and international operations and foreign charities fundraising here
and
Free Canadian Charity Law Newsletter:
/ toll free / 5

6. Charities Directorate of CRA
Regulates registered charities
Based in Ottawa and other offices throughout Canada
Website:
list:
Webinars:
Telephone: (English)
(Bilingual)
Provided funding for the Capacity Builders’ Charity Law Information Project 6

7. Good Work Outside Charity Realm7

8. Carrying on Good Works Abroad Outside the Charity Sphere
Personal donations of cash or in kind items to foreign charities, no tax receipt
Doing business in developing countries
Corporate social responsibility (CSR), donations, sponsorship, advertising, etc…
For-Profit “non-profit” – google.org, micro-loans
Non-profit without charitable status – if no need to issue tax receipts
Avoiding abusive transactions and paying fair share of taxes 8

9. Carrying on Good Works Abroad Outside the Charity Sphere
Volunteering – at home and abroad
Remittances – gifts to family, friends, former employees abroad
Encourage Canadian government to fulfill commitment of 0.7% of GNI
Encourage Canadian companies operating outside of Canada to do so legally and ethically
Our own actions – the goods we consume, environmental footprint, what we buy 9

10. Charitable Sector in Canada10

11. Voluntary Sector in Canada
161,000 non-profits in 2003 (federal and provincial and unincorporated)
83,500 Registered Charities (as of 2008)
2 million on payroll
$112 Billion in revenue,
49% from Government, earn 35%, 13% donations
2/3 have revenue under $100,000 11

12. Variety of Charities
12,000 carried on ‘programs’ outside of Canada – humanitarian assistance, development, education, religious, arts, etc… spent funds outside Canada
Every charity is different – objects / areas of charitable work / philosophy / risk tolerance / public profile / donors / level of government support / independent vs. international affiliations / resources / knowledge / local vs. international activities 12

13. Importance of Global Philanthropy13

14. Importance for our Planet
Great Challenge – 1.2 billion people live on less than a $1 per day, 11 million children under 5 die each year, 1 billion people lack access to clean water, neglected diseases, HIV/AIDS, natural disasters etc…
World is getting smaller – SARS, Tsunamis
Effect - $1 in Canada achieves $20-$40 in India 14

15. Importance for Organization
Fulfills objects of charity
Win/win (Canadian charity and foreign charity)
Staff morale and retention
Donor and stakeholder interests
Excellence 15

16. Canadian charities by $ spent outside of Can.
WORLD VISION CANADA $287,877,830.00
CARE CANADA $187,223,833.00
3. INT. DEVELOPMENT RESEARCH CENTRE $97,565,681.00
4. HAMILTON HEALTH SCIENCES CORP. $92,855,349.00
5. PLAN INTERNATIONAL CANADA INC. $54,146,626.00
6. THE CANADIAN RED CROSS SOCIETY $48,245,075.00
7. UNITED ISRAEL APPEAL OF CANADA INC $40,726,294.00
8. THE SAMARITAN'S PURSE ‐ CANADA $35,955,229.00
9. CHRISTIAN CHILDREN'S FUND OF CANADA $33,644,359.00
10. MENNONITE CENTRAL COMMITTEE CANADA $32,159,078.00 16

17. Canadian Charities Foreign Expenditures
- $1.4 Billion
- $1.8 Billion
- $2.1 Billion
$2.3 Billion 17

18. Some statistics
Philanthropy $2.3 billion Philanthropy (development) $1.1 billion (Hudson) Philanthropy (development) $0.7 billion (CCIC) ODA (“foreign aid”) $3.68 billion Remittances $8.9 billion Canadian investment $ ? 18

19. Income Tax Act and CRA Guidance on Foreign Activities19

20. CRA General Considerations
Objects exclusively charitable
Activities within objects
Only undertake charitable activities (relieve poverty, advance education, advance religion, other purposes beneficial to the community that the law considers charitable)
Cannot violate Canadian public policy or be illegal under Canadian law 20

21. CRA General Considerations (cont.)
Adequate books and records in Canada
Disbursement quota (“80/20 rule”)
No partisan political activities, only limited allowable non-partisan political activities (10% rule)
No unrelated business activities 21

22. Canadian Charity World Divided in Two
Qualified donees – can issue official donation receipts for Income Tax Purposes
Non-qualified donees – cannot issue official donation receipts 22

23. List of Qualified Donees
Registered charities;
Registered Canadian amateur athletic associations;
Registered national arts service organizations;
Housing corporations in Canada set up exclusively to provide low-cost housing for the aged;
A municipality;
A municipal or public body performing a function of government in Canada;
The United Nations and its agencies; 23

24. List of Qualified Donees (cont.)
Universities outside Canada with a student body that ordinarily includes students from Canada (these universities are listed in Schedule VIII of the Income Tax Regulations);
Charitable organizations outside Canada to which the Government of Canada has made a gift during the donor’s taxation year, or in the 12 months immediately before that period [IC 84-3R5];  and
The Government of Canada, a province, or a territory. 24

25. What is a Non-Qualified Donee?
All organizations other than qualified donees
They cannot issue official donation receipts
Examples include:
Foreign charities
Canadian non-profits with no charitable status
Businesses
Bono, Obama, Angelina Jolie 25

26. RC4106 Registered Charities: Operating Outside Canada
The Canadian Income Tax Act allows charities to conduct their charitable purposes by:
1) giving monies to another "qualified donee" (usually a Canadian charity but also includes the United Nations, some foreign universities with Canadian students and a small number of foreign entities); or
2) expenditures on their “own activities” (at home or abroad)
No third option - A Canadian charity cannot just transfer money or gift/grant funds to a non- qualified donee (including a foreign charity)

27. Canadian Registered Charity
Qualified donee
Gift to
“Own Activities”
[Direction and Control]
Structured Arrangement -Written agreement
Qualified Donee, eg.
Canadian registered
Charity, UN, prescribed
University, Canadian
Municipality, etc
Employee
Volunteer
Intermediary –
agency, JV,
partner,
contractor

28. CRA Consultation on Foreign Activities
Consultation on the Proposed Guidance on
Activities Outside of Canada for Canadian
Registered Charities
Sets out CRA views on foreign activities and dealings between Canadian Registered charities and non-qualified donees
Period for comments ended September 30, 2009 28

29. Why Deal with a Non-Qualified Donee?
Foreign Activities
You don’t have people in Malawi
You don’t have road building equipment in Haiti
Local people or organizations sometimes can do it quicker, better and more cost effectively
Canadian Activities
The best organization to implement charitable project may be a non-profit (non-charity) or a business and not another registered charity 29

30. “Own Activities” or “Direction and Control”
When not working with qualified donee or own staff:
Investigate Intermediary (due diligence)
Written agreement
Detailed description of Activity
Monitoring and Supervision
Ongoing Instruction for changes
Periodic Transfers
Separate Activities and Funds
Books and Records showing above 30

31. Amount of Direction and Control
Less direction and control when sending certain
types of ‘inherently’ charitable goods like blankets to
a trusted relief agency in a disaster
Most direction and control when sending cash
If in doubt have more, rather than less, direction and
control to protect your charity’s reputation, charitable
status and the resources entrusted to you. 31

32. Structured Arrangements
Employee or volunteer in foreign country
2) Agency agreement
3) Contractor
4) Joint venture agreement/joint ministry agreement
5) Cooperative participant agreement 32

33. Written Agreements Appendix E of Guidance – Checklist of the
elements of a written agreement
For example:
Are the legal names and physical addresses of all parties provided?
Is a clear, complete, and detailed description of the activities to be carried out by the intermediary provided?
Do the activities further the charity’s purposes? 33

34. Capital Property When acquiring, constructing, or improving any
immovable property be careful – high value
title of the property should vest in the name of the charity
certain exceptions for development work and when reasonable assurances obtained
discussed in Appendix D 34

35. Conduit vs. Structured Arrangement
Conduits – gifting resources to non-qualified donee, no direction and control, no description of activities, simply forwarding money, no monitoring, no reporting, no instructions
Structured Arrangement – relationship with adequate direction and
control –agreement, description of activity, progress payments etc.
See Structured Arrangement versus Conduit for Canadian Charities and Foreign Activities by Mark Blumberg 35

36. Books and Records Not good enough to do good work
Must be able to show you do good work
English or French preferred
Have books and records in Canada
CRA discusses difficulty getting records – make
“reasonable efforts” 36

37. How do I know if it is a Qualified Donee?
If in doubt check CRA’s listing of charities, call CRA, or treat organization as a non-qualified donee.
83,000 registered charities listed at CRA site:
Prescribed foreign universities at Schedule VIII of the Canadian Income Tax Regulations, as provided in section
A few Charitable organizations outside Canada to which the Government of Canada has made a gift in last 2 years [IC84-3R5]; 37

38. What is “new” in draft Guidance 2000 - 2009

39. Summary of Guidance Consolidates Updates Clarifies More flexibility
Provides more guidance (23 pages)
Minimum standards for charities
Reminder to charities that there are rules for Canadian charities operation abroad 39

40. 1) Non-Qualified Donees in Canada and Abroad
Policy applies to dealings between registered charity and non-qualified donee, whether non-qualified donee is in Canada or abroad
Replaces RC4106 40

41. 2) Applies from date of application for charity status
Applicants for charitable status that intend to carry on activities outside Canada are also subject to this policy 41

42. 3) Application and Written Agreement
Applications for registered charity status in Canada for organizations that will use intermediaries in foreign activities should include copy of draft or executed written agreement 42

43. 4) Importance of Foreign Activities
“Canadian registered charities make important and valuable contributions throughout the world.” 43

44. 5) Three Cases
The Canadian Committee for the Tel Aviv Foundation v. Canada (2002 FCA 72),
Canadian Magen David Adom for Israel v. Canada (Minister of National Revenue) (2002 FCA 323),
Bayit Lepletot v. Canada (Minister of National Revenue) (2006 FCA 128), 44

45. 6) Don’t Reinvent the Wheel
CRA reminds charities that foreign activities are difficult and that working with existing charities may be preferable to creating your own charity or to using your charity to conduct direct foreign activities 45

46. 7) Complying with Foreign Law
While the Income Tax Act does not require that registered charities comply with laws in foreign jurisdictions, being registered in Canada does not exempt a charity from the laws in the jurisdiction where they operate. The CRA strongly suggests that all charities make themselves aware of local laws, and how they are applied, prior to carrying out their charitable programs abroad. 46

47. 8) Avoid Terrorism
April 2009 – “Checklist for Charities on Avoiding Terrorist Abuse”:
16 Steps for Canadian charities and non-profits to avoid involvement with Terrorism at: 47

48. 9) Violating Public Policy
The court’s have also established that a charity’s purposes and activities must not violate officially declared and implemented Canadian public policy 48

49. 10) Reminder re: PGT in Ontario
CRA reminds Ontario established and based charities that “charity” as defined under the common law and enforced by the PGT in Ontario for purposes of gifting is not the same as ‘qualified donee’, under the Income Tax Act. 49

50. 11) Type of Intermediary
The type of intermediary that a charity needs to carry out an activity will depend on the facts of any given situation. The CRA does not recommend using one type of intermediary over another.
Agency, JV, Partnership, Contractor
No preference for agency 50

51. 12) Structured Arrangement (good) vs. Conduit (bad)
Conduits – gifting resources to non-qualified donee, no direction or control, no description of activities, simply forwarding money, no monitoring or reporting
Structured Arrangement – relationship with adequate direction and control
Structured Arrangement versus Conduit for Canadian Charities and Foreign Activities: 51

52. 13) Tithes and Royalty Payments
Charities may not simply send tithes, royalties, membership fees, or similar payments to head bodies, affiliates, or other member organizations without receiving goods or services of equivalent value in return. 52

53. 14) ‘Charitable Goods Policy’
If:
1) The resources transferred can, because of their nature, likely only be used for charitable purposes; [insulin, bibles] and
2) Based on an investigation into the status and activities of the intermediary, there is a reasonable expectation the intermediary will use the resources solely for charitable purposes
then less measures of control. Money = most measures of control. 53

54. 15) Written Agreement not good enough
…, simply entering into an agreement is not enough to prove that a charity meets the own activities test. The charity must also be able to demonstrate to the CRA that it has a real, ongoing, active relationship with its intermediary, whereby it actually directs and controls the use of its resources by that intermediary. 54

55. 16) One time transfers under $1,000
No De Minimis Rule but relaxed rules for one time transfers under $1,000
Do not require “full, formal written agreement” for one time activity of $1,000 or less but still need communication and direction and control over the use of resources by intermediaries
May affect 1300 of 4435 charities spending funds abroad 55

56. 17) Description of Activities*
Clear, complete and detailed description of activity
Document nature, scope and complexity 56

57. 18) Agency Relationships
Don’t Use An Agency Agreement if you don’t want an agency relationship
Agency – no limited liability, need segregation of funds
Contractor agreements are often preferable 57

58. 19) Books and Records Not good enough to do good work
Must be able to show you do good work
English and French preferred
Books and Records must be kept in Canada 58

59. 20) Concession on Receipts
With agency agreements need original receipts
If prohibited by law to send originals to Canada then send copies and have right of inspection
Contractor agreement is different – but always good idea/standard to get receipts or copies of receipts 59

60. Why Obtain Receipts
Yes receipts do not guarantee that funds actually spent or that project was effective and efficient
Not all receipts are created equal
But requiring receipts is a good idea because:
Makes fraud less likely;
Provide proof of expenses/backup;
May be helpful for warranties/returns or exchanges or proof of ownership;
Helps with budgeting and planning for next project;
Helps with finding errors;
May be required by CRA for direction and control, compliance and books and records;
May be required by funder (Foundation, CIDA) for reimbursement;
Reduces use of underground or black market economy which may tax evasion or be criminal activity
Provides local employment for copying/scanning. 60

61. 21) CIDA and Canadian Government Funding
A charity must ensure that all activities it carries on further its charitable purposes, regardless of the source of funding. In addition, a charity must still satisfy all its monitoring and reporting requirements.
Canadian government funding does not mean exemption from rules including direction and control 61

62. 22) Disaster Relief by New Charity
Can be priority to applications when disaster
But same requirements as other charities
Need to show direction and control
Disasters can be volatile and dangerous
Do they have capacity?
Local authorities may limit access to experienced charities 62

63. Some Ethical Issues in Foreign Activities
Equal partnerships, promote sustainability not dependency
Gift acceptance issues – type of gift, restrictions on use of gift
Governance and finances
Transparency and accountability
Effectiveness
Fundraising images
Do no harm – be careful who you support
Cultural, Religious and Gender issues 63

64. Some Ethical Issues in Foreign Activities
Use of resources, sustainability, coordination
Advocacy
Sexual exploitation
Child Sponsorship
NGO-Military ties
Pharmaceuticals and gifts in kind
International affiliations
Employee/Independent contractors
Compliance with Foreign Laws, payment of taxes 64

65. Further Information www.globalphilanthropy.ca 65

66. Evaluation
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If you have any additional feedback, contact or
Thank you for your participation today! 66