• Gifts to Foreign Charitable Organizations
  • April 3, 2012
  • Law Firm: Miller Thomson LLP - Toronto Office
  • The Budget also proposes changes to the process by which foreign organizations that have received a grant from the Federal Government will be considered qualified donees under the Income Tax Act.

    Current rules

    Generally, non-Canadian organizations are not qualified donees under the Income Tax Act. Thus, Canadian donors cannot obtain charitable donation tax credits or deductions for gifts to them, and registered charities are not permitted to make outright grants to them.

    An exception exists, however, for foreign charitable organizations that have received a gift from the Government of Canada in the 36 month period beginning 24 months before that time. These organizations are deemed to be qualified donees under the Income Tax Act. As qualified donees, these foreign charitable organizations may issue official donation receipts for gifts from Canadian donors. Canadian registered charities may also make gifts to foreign charitable organizations that are qualified donees.

    Proposed changes

    The Budget proposes that foreign charitable organizations that receive a gift from the Federal Government may apply for qualified donee status if they pursue activities:

    • related to disaster relief or urgent humanitarian aid; or

    • in the national interest of Canada.

    The Minister of National Revenue, in consultation with the Minister of Finance, will have the discretionary power to grant qualified donee status to a foreign charitable organization that meets these criteria. Qualified donee status will be public, and will last for a 24-month period beginning generally no later than the date of the gift from the Federal Government.

    Foreign charities that have qualified donee status under the existing rules by virtue of having received a Federal government gift will continue to be qualified donees until the expiration of the period of their current status.

    The Budget documents state that the CRA will develop guidance regarding the administration of this measure.

    This measure will apply to applications made by foreign charitable organizations on or after the later of January 1, 2013 and Royal Assent to the enacting legislation.

    Comments

    The Federal Government states that the new rules will ensure that qualified donee status is granted only to approve foreign charitable organizations that carry out activities of significance to, and in the interest of, the Canadian public. While this goal is laudable in principle, presumably any foreign organizations that have received grants from the Federal Government are carrying out activities determined by the Federal Government to be in the interest of the Canadian public. We believe that this change is actually seeking to ensure that the foreign qualified donee status is limited to specific large foreign charities that will now be more clearly under the authority of the Canada Revenue Agency. Note as well, that this change accepts a recommendation of the 1990 Report of the Auditor General of Canada to the House of Commons.

    Donors and charities considering grants to foreign organizations should continue to consult the list of qualifying foreign organizations in Information-Circular 84-3R6. Note that this list, which we believe to be incomplete, will now become official. We will monitor any CRA commentary on the new registration regime, and will report any developments in this Newsletter.