The government's draft guidelines for granting to non-qualified donees

Note: updated March 7, 2023 * | First published January 12, 2023

Last spring, the Government of Canada introduced a new regulatory regime for partnerships between charities and non-qualified donees as part of its first Budget Implementation Bill (to learn more see PFC’s June 21 policy update).

On January 10, PFC hosted an online event to engage our network in reviewing the draft guidelines that the Government of Canada released on November 30 for their new rules on granting to non-qualified donees.

The public has until January 31 to provide feedback. On December 16 we published a Member Advisory outlining our preliminary assessment of the draft guidelines.

We had more than 240 people register for our webinar. Lee Burton from MakeWay, and a member of PFC’s Policy Committee, and Liban Abokor, Co-Founder of the Foundation for Black Communities were on the panel, moderated by PFC’s President and CEO Jean-Marc Mangin.

We received dozens of questions during the webinar and the discussion was instructive, informative, and lively. It’s clear that the sector is very invested in the new regime for partnering with this crucial but historically under-funded segment of our sector.

Non-qualified donees are important actors in civil society, and these new rules represent an exciting new era of charities working with them. The government’s guidelines for these activities will have major ramification for these partnerships, and it’s imperative that they are informed by the on-the-ground experiences and expertise from across the sector.

Government needs to hear from us. The final guidelines must be relevant, user friendly and accessible. Otherwise they may not get utilized and the utility of the whole regime may be undermined.

Our window to provide feedback is very short. We are urging our network and the wider sector to review the guidelines, and to provide the government with feedback.

You can find the recording of the webinar here.

Also, we have taken the time to review the questions that we received during the webinar, to provide short answers below.

Q: Are the risk factors [identified in the draft guidelines] self assessed or do they have to meet a specific level to have a collaborative relationship with a foreign partner rather than hierarchical – working with a non qualified donee.

A: The risk factors identified in the draft guidelines are recommendations for consideration, and our understanding is that they would be self-assessed. PFC will be recommending significant editing of the “risk” components of the guidelines in particular.

Q: I have been looking for the reference to the $5000 threshold referenced in the Draft Guidance. Would you know where it is in either the ITA or the Regs?

A: $5000 is referenced throughout the guidelines in many places, as a minimum grant amount where more extensive reporting to the granting charities should be required. This threshold does appear in the Income Tax Act.

Q: For Program Related Investments (PRIs) is there a sense of what might change? Previously we’ve had to draft a letter that outlines how we will maintain direction and control over the life of the PRI.

A: We have not seen or heard anything about how these guidelines would impact PRIs specifically.

Q: Can you touch more on the language surrounding grants vs qualifying disbursement?

A: In the new rules, the government has introduced the new term “qualifying disbursements.” It refers to funding for qualified donees and non-qualified donees. They are calling funding to qualified donees ‘gifts’ and funding to non-qualified donees ‘grants’. PFC will share with the government that this may create confusion, as the term grant has historically been used to refer to funding for qualified donees.

Q: Will there be T3010 reporting requirements for qualified disbursements?

A: The CRA has told us that reporting changes are coming because of these new rules, but that that will be a longer-term project.

Q: I agree with Liban that, in some ways, the CRA’s “accountability” measures can be just as onerous/prohibitive as the Direct + Control rules. What tweaks can we request that would reduce those barriers and increase the ease of granting to NQDs?”

A: PFC’s submission to the government will outline recommendations to address these very concerns. Our Member Advisory from December 16 outlines our preliminary assessment of the guidelines to this effect. We will publish our final submission after we submit. In essence, we will be recommending the guidelines be revised to be more concise, user-friendly, and more technically focused.

Q: What is your sense about the steps that foundation boards will need to take this year, in order to prepare their own internal policies in a way that will allow them to make funds available to equity deserving groups/NQDs? Eg will some foundations need to update their charitable objects to move away from language that restricts them granting only to qualified donees?

* 7 March update: “We had indicated in our previous answer (January 12) that our understanding was that the CRA did not intend to require charities to update their objects, but we have come to understand that they do in fact expect to ask charities to do so, should they wish to grant to NQDs, as per our updated answer below.”

A: Amending your foundation’s charitable objects may be necessary, but we are not sure at this stage. We have come to understand that the CRA does intend to require charities to amend their objects if they wish to grant to non-qualified donees. We will be recommending that the CRA clarify this.

In terms of preparations, we would encourage boards to discuss the new rules so that they are fully aware of the opportunity and are prepared to make amendments to internal procedures if they are necessary for their individual contexts. When the final guidelines are released, internal processes should be reviewed.

Q: Will these “gifts” count towards the disbursement quota for each foundation?

A: Yes, we believe so. Grants to non-qualified donees are now considered qualifying disbursements, along with gifts to qualified donees. However, this has not been directly confirmed. PFC we will be asking the CRA to clarify this.

Q: What implication does this have for granting to organizations abroad? We are looking to grant to an organization registered and operating outside of Canada, would following the non-qualified donee path be a solution?

A: Yes, this would. Our understanding is that this new framework allows for funding for such groups if the activities advance the charitable mission of the funding charity, provided the necessary reporting and oversight criteria are met.

Q: Because they are supposed to further charitable purposes – any thoughts about making gifts that are unrestricted (i.e. that cover a groups operational expenses) or do you think that CRA will interpret this only for project based funding?

A: We believe that so long as the activities further your charitable purposes, such funding should be applicable.

Q: Should we hold off on granting to non-qualified donees until the final guidelines are out, even if it means maybe waiting at the end of the year? Is there a significant risk of a funder starting to make donations to unqualified donnees without knowing what the final guidelines will be?

A: The regime itself is now in place and law. So as long as you consistently apply the rules – you conduct due diligence, there’s a written agreement, and an accountability mechanism of some kind is in place, and the activities of the grant further your charitable mission – our understanding is that you should not have issues.

Q: In terms of providing feedback to the CRA on the guidelines, do you think that more individual submissions would make a difference?”

A: Yes. Please make a submission if you’re able. The more the government hears from the sector the more likely we’ll end up with final guidelines that are practical, useful and accessible.

Q: What opportunities do you see for aggregating and disaggregating data for funding QDs, NQDs (including registered nonprofits/societies, and non-registered groups) (both # of orgs and $ amounts)? Will the proposed changes to T3010s capture this data adequately?

A: We view these regulatory changes as a critical opportunity to press for better data on our sector. We do not know how the T3010 will be revised or when, but we will be working closely with colleagues and the CRA to help address the data deficit within and about the charitable sector so that both government and the sector can improve their understanding of our activities, responsibilities, and impact. Overhauling the T3010, as well as StatsCan targeted surveys, and mandating online reporting, reporting on investments, as well as diversity at the leadership level, are necessary for better data, greater transparency and accountability, and more effective philanthropy overall.

Q: The directed giving stipulation states that organizations jeopardize losing their charitable status for knowingly accepting gifts conditional on them going to NQDs. This provision may create risk to the charitable status of charities/foundations engaging in partnerships with NQDs, and as a result may discourage pooled funding partnerships which are an essential way of working now. Can you please comment?

A: PFC was pleased to see in the draft guidelines a key concern we have with the legislation referenced. Language in the draft guidelines on pooled funding specifically (section 7.7 starting at point 83) clearly articulates that gifts can be accepted by charities for programs that support non-qualified donees, but that charities must qualify that ultimate authority on the use of resources rests with the charity (section 7.4). However, we acknowledge that these guidelines are not law, and some of the wording of the legislation remains troubling. The directed giving stipulation states that organizations jeopardize losing their charitable status for knowingly accepting gifts conditional on them going to NQDs. The issue with this provision is that it creates risk to the charitable status of charities engaging in partnerships with NQDs, and as a result may discourage pooled funding partnerships – an essential practice used frequently, especially during urgent and quickly evolving contexts, as has been seen during war, natural disasters and the COVID-19 pandemic in Canada and globally. Nonetheless, the draft guidelines create a framework for pooled funding to occur, which we are pleased about. PFC will continue to press government for amendments to the legislation.

Q: Both Lee and Liban touched on “private benefit” and the potential for grant funding for social enterprise (outside of responsible/impact investing) Do you think we can we hope for greater clarity on this?

Abusing the rules is a concern, but they do stipulate that grants must advance the charity’s charitable mission. This is why the guidelines are important – charities need to understand what the CRA will be looking for in terms of evidence to this effect.