Operating Domestically with an Intermediary
By: Adam Aptowitzer

Canadian charities operating domestically often draw upon a local pool of volunteers, or partner with other registered charities to fulfill their charitable objects and in doing so generally gloss over the legal requirement to maintain control and direction over their assets. In some cases though, charities must work with non charities to accomplish their charitable objects. This interaction raises questions about the circumstances in which a charity can transfer funds to a non charity. A new guidance from the Canada Revenue Agency attempts to provide some direction in the area.

As the law does not distinguish between charities operating overseas from those operating domestically (at least in this context) the new guidance generally follows that given by the Charities Directorate to charities operating overseas. Moreover, the case law and commentary which applies to charities operating overseas can generally be said to apply also to domestic operations.

The key legal element, as referred to above, is that a charity maintain control and direction over its assets. In situations where a charity works with a partner organization to complete a project in another locale, the Canadian organization is often required to give at least nominal control over their assets to the partner. This partnership relationship could take many forms in order to ensure the Canadian organization meets the minimum legal requirement. Any charity turning over control of its assets (including cash) to another organization - particularly where that organization is not a qualified done - should review the new guidance and discuss their situation with qualified legal counsel.

Canadian charities operating outside our borders often find it logistically difficult to carry out these operations without help from a foreign partner. But, if a Canadian charity were to find itself working domestically with a non qualified donee (i.e. a non registered charity) the same legal concerns could apply. A recent guidance document helps charities operating exclusively domestically to understand how they might work with non-qualified donees to from the CRA addresses this situation.

Generally, the only reason a Canadian charity would work with a non qualified donee is to fulfil some element of its charitable objects that it cannot otherwise fulfil on its own. This may be because the charity has no experience or resources to operate in a particular geographical location or the particular skills required are beyond their expertise. The relationship itself though, can take on one of several different forms.

The most obvious is the simple contractual purchase of services. While there are some rules which affect this type of relationship (such as paying more than fair market value to someone not at arm's length with the charity), for the most part this arrangement is well understood.

The legal requirement for charities working with non qualified donees is that the charity maintain control and direction over the charity's assets wherever they are located.