Gifts to Foreign Charitable Organizations

March 29, 2012

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.

Disclaimer

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.

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