Anyone involved with a Canadian charity that operates internationally or sends funds abroad is probably intimately familiar with the considerable restrictions in this area. As with much of the law surrounding charities in Canada, the foreign activities rules are made up a small nucleus of actual statute law surrounded by an ever-growing outcropping of CRA policies and caselaw.
In this case, the nucleus is the Income Tax Act’s definition of a charitable organization as one that (among other things) devotes all of its resources to charitable activities carried on by itself, including disbursing funds to qualified donees. From this two-sentence starting point, the CRA has developed a web of policies that have culminated in a 12,000+ word guidance on how Canadian charities may carry out activities abroad.
Perhaps the most fundamental tenet of this policy is that a charity can enlist the help of an intermediary to undertake activities in another part of the world and still be considered to be undertaking its own activity, but only if the charity retains what the CRA considers to be sufficient ‘direction and control’ over the use of its resources by the intermediary. Merely gifting money to a non-qualified donee (which includes almost every organization outside of Canada) will cause the CRA to view the charity as a ‘conduit’ and likely revoke its charitable status.
The ultimate goal is to ensure funds that are donated to charities (often in return for tax credits) by Canadians are spent only on things that Canada can monitor and approve as being legally charitable according to its own definitions. In practice, however, these policies can result in outcomes that seem quite harsh.
An excellent example of this cropped up in July of this year in the form of the Federal Court of Appeal’s ruling against the Public Television Association of Quebec (PTAQ). The PTAQ was appealing the revocation of its charitable registration for acting as a conduit and making gifts to a non-qualified donee. The PTAQ’s purpose is, in part, to distribute and promote non-commercial, educational TV programs. To this end, it was purchasing TV program packages from Vermont Public Television (VPT) in the USA, including children’s cartoons like Caillou and informative adult shows like Nightly Business Report. It even had a written fundraising agreement in place with VPT, which is encouraged by the CRA when dealing with an agent. The agreement was that VPT would raise funds from Canadians as PTAQ’s agent and PTAQ would issue the donation receipts.
The CRA looked at this situation and decided that the PTAQ was not carrying on its own activities with VPT as its agent, but instead was merely a conduit for VPT. PTAQ’s primary sin was not exercising sufficient direction and control over VPT. PTAQ was merely selecting from predetermined program packages designed by VPT, and was not monitoring VPT’s broadcasting costs or the fundraising it was supposedly doing on PTAQ’s behalf, in violation of the monitoring and reporting requirements of their fundraising agreement.
Ultimately, the FCA’s decision in the CRA’s favour was quite predictable, but did serve to strengthen the definition of a conduit, and the fact that the onus is on the charity to prove that it is not one. PTAQ was not able to come up with the necessary evidence in this case. The lesson to Canadian charities here is to make sure you have an acceptable structure for your foreign activities and that you carefully document your control over your agents. The CRA is quite willing to come after you for sending money abroad improperly, whether that money is going to line private pockets, fund violent activities, or purchase commercial-free children’s programs.
 RSC 1985, c 1 (5th Supp), s 149.1(1)
 CG-002, “Canadian Registered Charities Carrying Out Activities Outside Canada”, available online at http://www.cra-arc.gc.ca/chrts-gvng/chrts/plcy/cgd/tsd-cnd-eng.html