GIFTS DIRECTED TO OTHER DONEES: Loss of
Charitable Status

Posted on October 20th, 2023 in Domestic Tax, Not-for-Profit

Charitable Gifting written on image with photo of present, red bow.

In some situations, a registered charity may be asked to receive donations on behalf of another organization or cause. While this may seem like a good way to generate funds and reward donors with charitable contribution receipts, it can have serious implications for the charity.

A February 1, 2023, Technical Interpretation considered a charity that would collect funds, issue receipts, and then disburse the funds to a qualified donee (a municipality). The municipality would then direct the funds to a non-qualified donee. The charity’s intention was to assist a non-qualified donee (in this case, a non-profit organization) in a fundraising campaign by collecting funds and issuing receipts.

A charity may have its status revoked if the charity:

carries on a business that is not a related business of that charity;
fails to expend amounts in any taxation year on charitable activities carried on by the charity and by way of qualifying disbursements, the total of which is at least equal to the charity’s disbursement quota for that year; or
makes a disbursement, other than
- one made in the course of charitable activities carried on by it, or
- a qualifying disbursement.

If the charity’s disbursement to the municipality was not a qualifying disbursement, the charity could have its status revoked.

A qualifying disbursement includes a gift to a qualified donee. A qualified donee includes a municipality in Canada that is registered by the Minister.

It is a question of fact as to whether the transfer to the qualified donee constituted a gift received, and therefore a qualifying disbursement. CRA’s general view is that donations can be received and receipted by a qualified donee (such as the municipality), provided that the qualified donee retains discretion regarding how the donated funds will be spent. If a qualified donee is merely acting as a conduit by collecting funds from donors, including a charity, on behalf of an organization that is legally or otherwise entitled to the funds so donated, the qualified donee is not in receipt of a gift. In this case, the gift from the charity would not be a qualifying disbursement.

A charity may also have its status revoked if it accepts a gift, the granting of which was conditional on the charity making a gift to another person, club, society, association, or organization other than a qualified donee.

ACTION: Caution and professional guidance should be sought should a charity consider accepting donations on behalf of another organization.

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Article originally published in: Tax Tips & Traps 2023 Third Quarter – Issue 143.