On July 8, 2010 CRA released an important new Guidance document: “Canadian Registered Charities Carrying Out Activities Outside Canada” (available at http://www.cra.gc.ca/tx/chrts/plcy/cgd/tsd-cnd-eng.html). This new Guidance replaces CRA Guide RC4106. It had been the subject of an extensive consultation process in which Miller Thomson charity lawyers had participated both directly in our own consultation submission and in preparing and commenting on submissions of individual clients and of other sectoral organizations.
The new Guidance is much more detailed and helpful than RC4106. It also provides more nuance and flexibility on how a Canadian charity can carry out foreign activities. However, it remains stuck in the paradigm (which the CRA believes is mandated by the Income Tax Act) of only permitting Canadian charities to carry out their own foreign activities. It remains our view that it would be more appropriate from a policy perspective if a Canadian charity could make cash grants to a foreign charity if the foreign charity was able to provide appropriate assurances that the funds granted would be spent in a charitable manner (as is the rule in virtually all other developed countries). Previous calls for this change have not resulted in the Department of Finance recommending or Parliament passing the changes that CRA believes would be required in order to permit appropriate foreign charitable grantmaking.
The New Guidance continues to contemplate that a Canadian charity may carry out foreign activities through the use of staff or volunteers, agents, joint venture arrangements, cooperative partnerships or service contracts. It acknowledges that some Canadian charities receive value from other sister or parent charities outside of Canada and contemplates payment in these circumstances. The new guidance also contemplates the continued application of the charitable goods policy whereby a Canadian charity may send goods to an appropriate intermediary where the nature of the goods limits their use to a charitable purpose. Finally, the new Guidance provides helpful clarification to the situations in which a Canadian charity may fund the purchase of land and buildings for use by a foreign charity.
The new Guidance should be reviewed by charities that carry out substantial foreign activities. It provides clarification, consistent with our experience, on designing and implementing structures for funding charitable activities, and should therefore provide comfort to charities that are engaged in foreign activities. At the same time, we confirm that we are engaged in representing a number of charities where CRA is seeking to revoke charitable registration in part because the CRA disagrees with how they have carried out and documented foreign activities. It is therefore important that charities continue to be careful in this area.