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ISNA Canada Regulatory Framework

for Charity to Charity and Charity to Non Charity Operations in Using Charity Funds and Other Resources

As a general rule, a charity can direct its financial and other resources only on activities aligned with its mission as defined in its letters patent and officially acknowledged bylaws.

ISNA Canada Board is ultimately responsible for all ISNA Canada operations either carried out directly or through intermediaries, agents or contractors. ISNA Canada can fulfill its mission in several ways.  Examples are:

  1. Carrying out operations through its own administration directly.
  2. Assisting other charities on projects that are in line with ISNA Canada mission.
  3. Assisting Non Charity NFP Corporations according to pre-arranged contracts
  4. Assigning and monitoring mission related activities through intermediaries, agents or contractors.

The first mode of operation does not need explanation.

The following paragraph provide pointers on items 2 to 4 in terms of regulatory agencies compliance policies and guidelines.

General Background

By law, registered charities are required to devote their resources exclusively to charitable activities. Generally, this requires charities to carry out their charitable activities and programs themselves. However, transferring resources to organizations that meet the definition of a “qualified donee”, including another registered charity, is also considered a charitable activity under the ITA.

As a result, instead of spending money on its own activities, a charity also has the option of transferring money to another charity to carry out those charitable activities instead. In the vast majority of cases, the only qualified donee a charity will transfer resources to will be another registered charity, with similar objects.

The New Rules

Previously, the qualified donee entities were generally not subject to special registration requirements under the ITA (at least not in their capacity as qualified donees). However, recent amendments to the ITA have changed that. Now most of the entities listed above are required to be registered with the Canada Revenue Agency in order to become or continue to be qualified donees. Once registered, a qualified donee will be included on a publicly accessible list on CRA’s website. Charities should not make a gift to any organization that is not included on a public CRA list (other than Her Majesty in right of Canada or a province and the United Nations and its agencies).

Ongoing Obligations for Qualified Donees     

Once registered, qualified donees must ensure that they properly issue donation receipts, accurately valuate non-cash gifts, maintain proper books and records, and provide CRA with access upon request. Failure to do so could result in a suspension of their receipting privileges or a suspension of their qualified donee status.

Practical Implications

As a result of these recent changes to the regulation of qualified donees, specific steps now need to be taken by both registered charities and qualified donees.

Qualified donees must ensure that they are registered with CRA, and familiarize themselves with their new requirements, including the types of books and records they are required to keep, as well as the information that must be contained on an official donation receipt.

Registered charities that make gifts to qualified donees must ensure that they only do so to those publicly listed on CRA’s website.

Charities should also ensure that any gift to a qualified donee is consistent with its charitable purposes. Although these gifts are permitted under the Income Tax Act, they could potentially constitute a breach of trust if a charity transfers resources to an organization where  the gift could be used to carry out activities that do not further, or are inconsistent with, its charitable objects.

For more information.

Working with Non-Charities, Intermediaries and Agents

Charity Non-Charity Relationship

Agency Relationships

As a Public Foundation, the community foundation is restricted by the Income Tax Act to make grants or distributions only to Registered Charitable Organizations.  CRA has recently requested that the relationship between the charity (Lead Partner) and the non-charitable organization (the agent) be formalized and documented before a grant can be awarded.

An organization that is not a Registered Charity wishing to apply for funding from the community charity foundation may consider the following:

1) make formal application to CCRA to become a Registered Charity, or

2) establish a partnership or agency relationship with a Registered Charity (RC) who would act as a ‘sponsor’ for the organization and the proposed project.

  • the relationship must be a formal arrangement set out in writing between the Boards of Directors of the RC and the Org.
  • the terms of the agreement should include:a full description of the project providing responsibility to RC for insuring the project is completed by the Org as described that RC has responsibility for  distribution of funds to Org as work progresses that RC has responsibility/accountability to CF for performance of Org
  • the relationship must be an appropriate link, not simply one of convenience.

Guidelines for a Registered Charity acting as a principal or partner are attached on Schedule 1.

An example of a contract provided by CRA is attached as Schedule 2.

Direction and control when using intermediaries

The Canada Revenue Agency (CRA) requires that a charity take all necessary measures to direct and control the use of its resources when carrying out activities through an intermediary. When carrying out activities through an intermediary, the following steps are strongly recommended:

  • Create a written agreement with the intermediary, and implement its terms.
  • Communicate a clear, complete, and detailed description of the activity to the intermediary.
  • Monitor and supervise the activity.
  • Provide clear, complete, and detailed instructions to the intermediary on an ongoing basis.
  • Arrange for the intermediary to keep the charity’s funds separate from its own, and to keep separate books and records.
  • Make periodic transfers of resources, based on demonstrated performance.

A charity must maintain a record of steps taken to direct and control the use of its resources, as part of its books and records, to allow the CRA to verify that all of the charity's resources have been used for its own activities.

For more information on conduits, see section 3.5. For more information on direction and control, see section 5.

What is a conduit?

For the purposes of this guidance, a conduit is an organization that accepts donations for which it typically issues tax-deductible receipts and then funnels the money, without maintaining direction and control, to a non-qualified donee. Acting as a conduit violates the Income Tax Act and could jeopardize a charity's registered status.


A charity is registered to protect the environment. A non-profit organization with identical purposes approaches the charity, and explains it has submitted an application for charitable status, but has not yet been registered.

The non-profit asks if the charity will accept donations on its behalf, issue receipts, and then forward the money to the non-profit. The charity agrees to the non-profit organization's request.

The charity has no direction or control over how the receipted funds are used, and no say in where, when or how the activity is carried out. In this case, the charity is simply funding the non-profit's own activities, and therefore, even though the activity itself may be charitable, the charity is acting as a conduit.

To avoid acting as a conduit, the charity must have real and demonstrable control over the use of its money, so that the carrying out of that activity by the intermediary amounts to the charity carrying on its own activity itself.

A charity may also be acting as a conduit when it transfers resources to a head body or umbrella organization that is not a qualified donee. In such cases, a charity and its head body may create a written agreement that gives the appearance that the head body is the charity's intermediary.

To determine if a charity is acting as a conduit, the CRA will look at the following types of facts:

  • Does the charity have any evidence that it exercises ongoing direction and control over the use of all of its resources?
  • Does the charity keep adequate books and records at a Canadian address it has on file with the CRA?
  • Does the charity receive goods and services of proportionate value for any money or other resources it sends to a non-qualified donee?
  • Does the charity need permission from a non-qualified donee to undertake activities, or approval of how to carry out those activities?

What are the requirements when working with an intermediary?

A charity typically uses an intermediary when unable to carry out its own activities through its staff. The intermediary usually has resources that a charity needs, such as particular skills, resources, knowledge of a region, or specialized equipment.

Before deciding to work with an intermediary, and during the course of any such arrangement, a charity should investigate its status and activities to assure itself of the following conditions:

  • The intermediary has the capacity (for example - personnel, experience, equipment) to carry out the charity's activity.
  • There is a strong expectation the intermediary will use the charity's resources as directed by the charity.

When working through an intermediary, a charity must direct and control the use of its resources. A charity that does not direct and control its resources when working through an intermediary risks sanctions under the Income Tax Act, including the revocation of charitable status.

An intermediary can sometimes also be a beneficiary of a charity's activity - for example, acquiring skills and expertise - while carrying out the activity. For more information on this type of situation, see Appendix A.

Any private benefit provided to an intermediary by a charity must be incidental and proportionate to any work being done. For example, a charity should ensure it pays a contractor only fair market value for any work done on its behalf.


The structure of an arrangement with an intermediary may have important implications for a charity. In particular, the charity can be exposed to liability for the acts of the intermediary. In the case of an agency agreement, even if there is no formal agreement in place, a court can attach liability to the charity if the court decides that there is an implied agency relationship.

What are the most common types of intermediaries?

Following are descriptions, provided for the purposes of this guidance only, of the four most common types of intermediaries a charity might use to carry out its own activities.

The type of intermediary that a charity needs to carry out an activity will depend on the facts of any given situation. The CRA does not recommend using one type of intermediary over another.


An agent is an intermediary that agrees to carry out specific activities on a charity's behalf. A charity often uses an agent when the charity cannot send its staff to a region to carry out an activity.


A charity is registered to provide psychological counselling services to people in under-served northern communities across Canada. None of the charity's staff has any training in providing counselling. Instead, the charity locates a number of professional psychological counsellors with their own independent practices who agree to act as the charity's agents in carrying out the activity.

The charity and the counsellors create and sign an agreement describing the details of the activity and their respective roles and responsibilities. The agreement states that the charity will pay all travel and operating expenses, and the counsellors will volunteer their time and make typical day-to-day operating decisions, such as renting offices, notifying the communities of their services, and hiring local support staff.

The counsellors provide regular, detailed reports on the use of the charity's resources, according to the terms of the agreement. The charity intervenes as required to provide ongoing instructions on the use of its resources to make sure that the activity continues to be carried out according to the agreement, and that the activity is achieving the charity's own charitable purpose.

Joint venture participant

A joint venture participant is an organization that a charity works with to carry out a charitable activity. The charity and one or more joint venture participants pool their resources to accomplish their goal under the terms of a joint venture agreement.

A joint venture participant differs from an agent in that the charity is not relying entirely on the joint venture participant to carry out activities for the charity. Instead, the charity works with a joint venture participant to further the charitable activity.

Typically the charity has members sit on the governing board for the entire project, letting the charity make decisions on the use of its resources for the project. The structure of a joint venture varies from case to case.

A charity must be able to establish that its share of authority and responsibility over a venture allows the charity to dictate and account for how its resources are used. If a charity does not have enough decision-making authority to make sure that its resources are used as it directs, it may have difficulty establishing that it is carrying on its own activities.


A charity is registered to relieve poverty by providing small business loans in areas of social and economic deprivation. The charity collaborates with a for-profit bank to design an activity that will provide entrepreneurial training, support services, and start-up loans to hard-to-employ people.

The charity and the bank form a governing body to operate the venture. The charity provides roughly 40% of the funding for the project and its representation on the venture's governing body is approximately 40% of the decision-making power. As long as the venture only uses the charity's resources for the charity's own activities, the arrangement should be acceptable.

However, with only 40% of the decision making power, it is possible the bank could decide to use the charity's resources inappropriately, such as carrying on different activities that are not those initially agreed to. Therefore, the arrangement should include a provision that allows the charity to discontinue devoting its resources to the venture under such circumstances.

The CRA will look at any venture as a whole, and a charity's participation in a venture, to make sure that the charity's resources are only furthering its charitable purposes. If the purpose of an overall project is not charitable, such as providing excessive or undue private benefit to an individual or company, a charity's own activities on behalf of that project may not be acceptable, even if those activities would normally be considered to be furthering its charitable purposes if carried out on their own.

For a list of the factors the CRA looks at when examining joint venture arrangements, see Appendix B.

Co-operative participants

A co-operative participant is an organization that a charity works side by side with to complete a charitable activity. Rather than pooling their resources and sharing responsibility for the project as a whole, as in a joint venture, the charity and other organization(s) instead each take on responsibility only for parts of the project.


A charity and a non-profit corporation have a common object to assist youth at risk in a major city. The charity specializes in helping teens recover from substance abuse. The non-profit provides academic assistance to teens with learning disabilities. They decide to lease a space jointly to run a new program, aimed at helping youth at risk complete high school.

Each organization operates its particular program out of its half of the leased space, using its own staff and resources. While they co-operate by, for example, sharing information and recommending potential candidates for each other's programs, each organization retains ownership of its assets and carries out its responsibilities independently, without oversight or control from the other body.


A contractor is an organization or individual that a charity hires to provide goods and/or services. For example, a charity might hire a for-profit construction company to build temporary housing for homeless individuals.

A contractor is an intermediary with whom direction and control is usually exercised through the terms and oversight of the contract between the charity and the person or business providing the goods or services.


A charity is registered to carry out research into a particular disease. As part of its activities, it contracts with a private medical laboratory to test new compounds for their disease fighting properties.

The charity and the laboratory draft and sign a contract that outlines all the terms and conditions of their relationship. The contract is the instrument through which the charity directs and controls the use of its resources, monitors the use of its resources as the laboratory carries out the activity, and ensures that only fair market value is paid for any work done.

What is direction and control?

A charity must direct and control the use of its resources when transferring them to an intermediary. The charity must be the body that makes decisions and sets parameters on significant issues related to the activity on an ongoing basis, such as the following:

  • how the activity will be carried out
  • the activity's overall goals
  • the area or region where the activity is carried out
  • who benefits from the activity
  • what goods and services the charity's money will buy
  • when the activity will begin and end

Maintaining direction and control does not mean a charity cannot accept advice from its intermediaries, or that a charity must make every decision involved in the carrying out of an activity, although it must have the ability to intervene in any decision. Typically, the types of decisions listed above would describe the overall framework of an activity.

An intermediary that carries out the work in the field is often in a better position to make day-to-day operational decisions. A charity can delegate the responsibility for such decisions to an intermediary, although this is not required under the Income Tax Act. For example, a charity might delegate the authority to make the following kinds of decisions:

  • which local vendor to buy supplies from
  • hiring and managing staff
  • locating potential beneficiaries for an activity
  • maintaining buildings owned or operated for the charity's activities

The intermediary should report back to the charity on any decisions made, so that it can make sure that the intermediary continues to comply with the Income Tax Act. For example, an agent awarding scholarships for a charity should be able to provide a list of recipients. This will let the charity make sure the agent is not awarding scholarships only to friends and family of the agent. The charity can veto awards that are not appropriate, and so continue to meet the public benefit test.

How should a charity direct and control the use of its resources?

Generally speaking, the nature and the number of measures a charity adopts to direct and control the use of its resources should correspond to the circumstances of the activity, such as:

  • the amount of resources involved
  • the complexity and location of the activity
  • the nature of the resources being transferred
  • any previous experience working with a particular intermediary
  • the capacity and experience of the intermediary

The CRA recommends adopting the following types of measures to direct and control the use of a charity's resources:

  • Create a written agreement, and implement its terms and provisions.
  • Communicate a clear, complete, and detailed description of the activity to the intermediary.
  • Monitor and supervise the activity.
  • Provide clear, complete, and detailed instructions to the intermediary on an ongoing basis.
  • Arrange for the intermediary to keep the charity’s funds separate from its own, and to keep separate books and records.
  • Make periodic transfers of resources, based on demonstrated performance.

A charity must record all steps taken to exercise direction and control as part of its books and records, to allow the CRA to verify that the charity's funds have been spent on its activities.


A charity is registered to assist refugees, and it begins an activity to help refugees in Canada from a foreign country that recently suffered a civil war. However, the charity's staff has little expertise in the language and culture of the foreign country, and encounters difficulty when trying to contact people it can help.

The charity finds a Canadian, non-profit organization that welcomes newcomers to Canada, and that by coincidence happens to have several members who immigrated from the same country some time ago. The non-profit agrees, and has the capacity, to act on the charity's behalf in carrying out the activity of providing housing, interpretation, language training, social services, and employment preparation.

The charity and the non-profit meet to plan the activity. The charity takes the non-profit's advice and experience into account as they plan the activity, although it has final authority over the use of its funds. Both parties are satisfied with the activity, and the non-profit agrees to act on the charity's behalf.

The charity adopts as many measures to direct and control the use of its resources as is practical, including developing a written agreement with its agent, implementing the terms of the agreement, monitoring the activity, and providing ongoing instruction when required.

In this case, the CRA will likely consider that the charity is directing and controlling the use of its resources.

The facts of every situation will differ, and it is not possible to give precise guidelines to cover all situations in advance. If a charity plans to start a program that requires the transfer of property to an intermediary, or has questions about these types of transfers, we recommend contacting the CRA for advice.


  1. CRA website: Enhancing the Regulatory Regime for Qualified Donees.
  2. http://www.cra-arc.gc.ca/gncy/bdgt/2011/qa20-eng.html http://www.cra-arc.gc.ca/chrts-gvng/chrts/plcy/cgd/qlfddns-eng.html, Guidance, Reference Number, CG-010, Issued August 15, 2011This guidance replaces Summary Policy CSP-Q01, Qualified Donee.
  3. The New Qualified Donee Regime and its Implications for Charities, Derek Ross | Sep. 17, 2013 | Charity law and policyIncome Tax Act, https://www.cccc.org/news_blogs/derek/2013/09/17/the-new-qualified-donee-regime-and-its-implications-for-charities
  4. Charities Directorate, Canada Customs & Revenue Agency, 1-800-267-2384


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