Funding non-qualified donees just got one step easier for Canadian charities

June 6, 2022 | Stephen Hsia

It might soon be easier for Canadian registered charities to give funds directly to non-qualified donees in Canada and abroad.

Currently, Canadian registered charities can use their resources only on their “own activities” or on gifts to other qualified donees. If a registered charity transfers its resources to a non-qualified donee, the Canada Revenue Agency (“CRA“) will consider the transfer to be part of a charity’s “own activities” and a permitted activity only if the charity has “direction and control” over the non-qualified donee’s use of the charity’s resources. “Direction and control” is generally evidenced by an agreement made between the charity and the non-qualified donee in which the charity adopts the non-qualified donee’s activity as its own and imposes controls on it.

The current “own activities” rule and the “direction and control” test have been criticized as being paternalistic, artificial, administratively burdensome, and out of step both with other countries’ charity laws and with the practical reality of how charities generally work with, and support, other organizations.

On June 1, 2022, the House of Commons Standing Committee on Finance made changes to the proposed qualifying disbursements rules in the Budget Implementation Act, 2022, No. 1 (the “BIA“) which were intended to provide relief from the current regime.

If approved, these changes would simplify the proposed definition of “qualifying disbursements” in the Income Tax Act (Canada) (the “Act“) to:

“a disbursement by a charity, by way of a gift or by otherwise making resources available,

(a) subject to subsection (6.‍001), to a qualified donee, or

(b) to a grantee organization, if

(i) the disbursement is in furtherance of a charitable purpose (determined without reference to the definition charitable purposesin this subsection) of the charity,

(ii) the charity ensures that the disbursement is exclusively applied to charitable activities in furtherance of a charitable purpose of the charity, and

(iii)  the charity maintains documentation sufficient to demonstrate:

(A) the purpose for which the disbursement is made, and

(B) that the disbursement is exclusively applied by the grantee organization to charitable activities in furtherance of a charitable purpose of the charity.”

The requirement in (iii) is new. The proposals in the first draft of the BIA required that qualifying disbursements comply with a prescribed list of mandatory accountability requirements. Those regulations would have required the charity and the grantee organization to make a written agreement containing seven accountability requirements. The charity would also have to fulfill certain due diligence, reporting, and remedial obligations with respect to the grantee organization and its use of the disbursement. In an earlier article (“The new qualifying disbursements rules: An improvement?” dated May 2, 2022), we had questioned whether that version of the new qualifying disbursements rules truly represented a compelling alternative to the existing “own activities” rule and “direction and control” test. We argued that in many scenarios, the new rules proposed at the time could be more draconian and paternalistic than those rules currently in effect.

The Committee’s decision to scrap the prescribed list of mandatory accountability requirements for qualifying disbursements in favour of a simpler, more flexible and more principled approach is a welcome development. If the new rules are enacted, Canadian charities will no longer need to enter into agreements with non-qualified donees that contain a prescribed list of conditions in order to make their funds and resources available to them. Written agreements would be helpful in fulfilling the requirement in (iii) but charities will be able to structure the arrangements to meet the particular circumstances of the project or program on which they are working with the grantee organization. Less paternalistic and less prescriptive, the new proposed “qualifying disbursements” rules could provide a serious and attractive alternative to the current “own activities” rules and “direction and control” test.

Canadian charities will still be required to disclose on their T3010 annual information return (i) the name of each grantee organization that received more than $5000 in qualifying disbursements in the year, (ii) the purpose of each such disbursement, and (iii) the total amount disbursed to each grantee organization in the year. This part of the BIA remains unchanged and so do our concerns. In its recent report, the Finance Committee did not clarify whether this disclosure will be publicly accessible or will be included in the confidential section of the T3010 that is available only to CRA. We recommend strongly that this information not be publicly accessible (or perhaps that the information that is publicly available be limited) in order to protect the safety of grantee organizations operating in dangerous parts of the world.

Unfortunately the BIA did not drop the government’s proposed prohibition on directed gifts. It will remain the case that a Canadian charity wishing to make a grant that is a qualifying disbursement will not be permitted to act on a donor’s direction on who should be a grant recipient. On its face, this new prohibition will act as a significant deterrent to fundraising for specific projects where the donor knows the identity of the recipient (such as fundraising by an international development charity for work in a specific country where the donor expects the Canadian charity will have a specific affiliate there). In our view, at a minimum, gifts to a charity that will be provided by the charity to a known recipient as a qualifying disbursement should be excluded from this prohibition.

Time will tell whether Parliament will pass the BIA and approve the qualifying disbursement rules as amended by the Finance Committee (although changes at this point are, we understand, unlikely). Time will also tell what administrative guidance the CRA will provide regarding qualifying disbursements – in particular, the types of documentation it considers “sufficient” to show that a non-qualified donee is using the disbursement exclusively for the charity’s charitable purpose. However, on their face, the new changes are a positive start, moving in the right direction, and presenting new and exciting possibilities for Canadian charities seeking to make a difference in Canada and around the world.

This article is about an ongoing development. Subscribe to Miller Thomson’s Social Impact Newsletter to stay informed.


This publication is provided as an information service and may include items reported from other sources. We do not warrant its accuracy. This information is not meant as legal opinion or advice.

Miller Thomson LLP uses your contact information to send you information electronically on legal topics, seminars, and firm events that may be of interest to you. If you have any questions about our information practices or obligations under Canada’s anti-spam laws, please contact us at

© Miller Thomson LLP. This publication may be reproduced and distributed in its entirety provided no alterations are made to the form or content. Any other form of reproduction or distribution requires the prior written consent of Miller Thomson LLP which may be requested by contacting