Q&A on Granting to Non-Qualified Donees

In late 2023, the Canada Revenue Agency published its final guidelines with regard to the new regulatory regime that allows grants to non-qualified donees – non-profits, grassroots groups and others without charitable status that carry out important charitable activities and contribute to Canadian society.

On February 14, 2024, PFC hosted an online event to provide our network with a high-level overview of the rules and the guidance, practical examples to consider in partnering with NQDs, and information about a forthcoming resource led by PFC member McConnell Foundation to support foundations in these types of partnerships.

Speakers included:

Sara Krynitzki, Director of Public Affairs and Research, PFC
Jane Rabinowicz, Chief Program Officer, McConnell Foundation
Todd Jaques, Director, Policy and Research, MakeWay

We had more than 500 people register for our webinar. The discussion was informative, and we received dozens of questions. It’s clear that there is substantial curiosity about this new regulatory pathway, and a lot of interest in partnering with this crucial but historically under-funded segment of our sector.

Video Recording

For those who were unable to attend, or are looking for more information, you can find the recording of the webinar here. We have also taken the time to review and answer the questions in writing that we received during the webinar – see below.

Questions and Answers

Q: When it comes to completing the T3010 (year end reporting), what additional requirements will there be for funders in terms of detail that needs to be provided for donations to NQDs?

The T3010 was updated recently to include updated language related to qualifying disbursements (gifts to qualified donees and grants to non-qualified donees), along with questions related to NQDs specifically. Note that there are different versions this year depending on your fiscal year end.

There is also a new form T1441, specific to those granting to NQDs.

In sum, the new version of Form T3010 includes new questions on:

Donor-advised funds held by the charity, including the total number and value of accounts, as well as the total value of donations to and qualifying disbursements from these accounts
For foundations – restricted funds held by the foundation, including the amount a foundation is not permitted to spend due to a funder’s written trust or direction
A breakdown of cash/bank accounts and short-term investments
A breakdown of land and buildings in Canada used for charitable programs or administration and those used for other purposes
Impact investments
Interest and investment income from impact investments
Interest and investment income from persons not at arm’s length

A new schedule on the disbursement quota has been introduced to help charities calculate their disbursement quota. The schedule calculates the disbursement quota requirement and the excess or shortfall for the charity’s current fiscal period, and estimates the disbursement quota requirement for the charity’s next fiscal period.

Q: Where can we find a list of what qualifies as “charitable activities?”

Charitable activities is a broad concept. See here for information about how the government describes charitable activities.

Q: What are some of the issues that have come up with the “direction and control” pathway?

Direction and control challenges the goal of equal partnership with local communities and civil society. Key resources in historically excluded communities are often provided by grassroots leadership, and such initiatives are overwhelmingly led by those who are racialized and other groups that are underrepresented and underfunded in philanthropy. Thus, supporting non-qualified donees is imperative to advancing equity and racial justice because on-the-ground initiatives are often the most nimble and best equipped to identify and advance solutions for their own communities.

Yet, direction and control rules can hamper genuine partnerships because they necessarily assert that the charity must possess decision making authority over the organizations. They require investments and tradeoffs that some community groups do not want to or are not able to make for a host of legitimate reasons. Here are just a few:

Some groups may not have the capacity or expertise to be able to manage the administrative requirements, but yet deliver high-caliber programming and services.

Questions of intellectual property over programming are in play with ‘direction and control’, which is off-putting for some individuals and groups.

Trust issues are at play for some communities, and programmatic success may be hampered if service providers must serve as agents of other organizations they do not know or trust.

Q: The CRA wants a ‘written agreement’ between a charity and an NQD. Are there any models for such a written agreement available anywhere?

Agreements between charities and NQDs can be written, but the rules enable flexibility in terms of the charity’s documentation and diligence. Some recommendations are provided in the guidelines.

Also, led by McConnell Foundation, a resource supporting granting to NQDs is in development, and it will provide some recommendations and considerations as well. PFC will share the resource once published.

Q: With these new guidelines, do you foresee foundations/funders being more flexible on eligiblity for both QDs and NQDs, especially in regard to funding core operations and staff, and doing so long-term (meaning, multi-year)?

This is certainly a trend we have been seeing over the last few years, and we expect that it will continue.

Q: What is the best way to search the status of an organization, be it a non-profit or a charity?

Charities and other qualified donees are listed with some basic information about their operations on the CRA website here.

There is no official national registry of nonprofits, however. Nonprofits can be registered federally or provincially. Some provinces have registries, but limited information is available, such as Ontario’s Business Registry, which houses information on business and not-for-profit corporations.

There are also many unincorporated nonprofits that do not appear in any registry.

Q: Can anyone speak to the four specific categories of the categories that our charitable purposes must fall under? What if your granting foundation supports more organizations and causes than these? Our foundation has broad objects that gives us a lot of flexibility. Can you speak more specifically regarding the considerations/ implications of changing a foundation’s objects?

There are four categories recognized by government that are reviewed to ensure organizations meet the public benefit test to be deemed a charitable organization:

purposes for the relief of poverty
purposes for the advancement of education
purposes for the advancement of religion
other purposes beneficial to the community in a way the law regards as charitable

Your objects (purposes) are the objectives that an organization is created to achieve. While they must fall into one of the categories, they are not the same thing.

See here and here for more details from the CRA on the issue.

For more details from the CRA on crafting your charitable purpose, see here.

Q: If a foundation’s objects are very general do we have to change our objects to meet the guidelines for non qualified donees?

PFC recommends reviewing your objects and seeing if there is anything that seems to be misaligned with granting to NQDs.

Q: What type of acknowledgement/receipt does an NQD provide when receiving a grant, and is it recognized by CRA?

There are no stipulations about NQDs providing acknowledgements or receipts in the guidance or the legislation – the onus for documentation to ensure requirements are met are on the charity. This can come in many forms, and some recommendations are provided in the guidelines.

Q: Any advice or special considerations for funders working with NQDs internationally, not just within Canada?

There are some special considerations for charities working internationally. In sum, the CRA recommends that charities review Canadian and local laws with regard to the activities, and whether grant activities take place inside or outside Canada, they must never contravene officially declared and implemented Canadian public policy.

More details are in section 4.0 on special topics, at the bottom of the guidelines.

Q: How/can a charity give grants to individuals (if the grant supports activities that advance the mission of the organization)?

This is possible, but the stipulations in the NQD guidelines apply: activities would need to align with charity’s charitable objects, and be charitable activities, and they need an accountability mechanism for the grant. Or a charity can make an allocation through their own activities (“direction and control”) pathway – essentially to an individual as a contractor or agent.

Q: Are there any caps on how many NQDs can be funded by one charity per year?

No, there are no caps. The Income Tax Act requires that a charity that is designated as a “charitable organization” disburse no more than 50% of its income to qualified donees; otherwise, it may be re-designated as a public foundation. But there is no limit on how much of its income a charitable organization may devote to making grants to non-qualified donees, and this will not affect a charity’s designation.

Q: Is there any clarification/guidance on the process for selecting grantees (i.e. for example, charities who have a close relationship to specific NQD’s).

This is up to the individual charity. Activities need to align with the charitable objects of the charity, and be charitable activities. And the charity needs an accountability mechanism in place.

Q: When considering granting to NQDs, do you also have to change how you grant (proposals, agreements, reporting, etc) as a result of the changes to direction and control requirements?

There have been NO CHANGES to direction and control requirements. There is a new, additional pathway for charities to partner with NQDs, and that is through granting, which is outlined in the guidelines.

However, the accountability requirements for grants to NQDs are different than gifts to charities. Also, while both qualified donees and non-qualified donees carry out important, legitimate charitable activities, their capacities, resources and administrative expertise will vary.

For both of these reasons, charities may want to consider reviewing their grant administration procedures, to ensure requirements are met and to consider accessibility.

Q: When you grant to an NQD can they use it for operating expenses? Regarding agreements – I assume that gifts to NQDs can be both restricted and unrestricted just like with charities – is this right?

Yes, in theory, but it depends. The key is that activities need to be charitable and align to the charity’s objects.

Q: What do you say to funders who are concerned about being overwhelmed with grant applications?

(From McConnell Foundation) We take steps to make our granting priorities as clear and accessible as possible so potential partners can learn whether their work might align or be eligible in advance. We continue to take steps to improve our communications in this area. Offering office hours and publishing our Funding and Partnership Guide, which illustrates our decision making process, are steps we have taken as part of this. https://www.mcconnellfoundation.ca/report/funding-and-partnerships-guide/