Understanding the CRA Guidance on Grants to Non-Qualified Donees

[00:00:00] Moderator: Hello everyone and welcome to today’s webinar: Understanding the CRA Guidance on Grants to Non-Qualified Donees. Thank you for joining us. Before we start the webinar, there are a few housekeeping items we would like to cover. Please make sure that your microphones are muted and your cameras are off. There will be an opportunity for questions at the end of the presentation. Please use the Q&A function at the bottom of your screen to share your questions.

This session will be recorded. We will share the recording of this webinar within the next few days. [00:00:30] Please note the information provided in this webinar does not and is not intended to constitute legal advice. This is for general informational purposes only, and you should consult with your legal counsel before acting on this information, particularly since this is draft guidance.

Today’s presenters are Ted Hart, president and CEO of CAF America and CAF Canada. An internationally recognized speaker, Ted has over 30 years of experience in advising global philanthropy and is an expert in regulatory frameworks [00:01:00] governing both domestic and global philanthropy and risk management. Ted will be joined by Jessie Krafft, CAF Canada’s Senior Vice President of External Affairs. Jessie is responsible for developing and executing services, assisting donors with strategic grant making, philanthropy planning, and investing in charitable assets. I will now pass the floor to Ted Hart, president and CEO of CAF Canada.

Ted Hart: Thank you. Thank you for joining us today. CAF Canada is a registered Canadian charity [00:01:30] working to expand the culture of giving by making it easy, reliable, and effective for Canadians to give both internationally and domestically. Our mission is to help donors make strategic and focused philanthropic decisions, which have lasting positive impact on individuals and communities they support throughout the world.

We have a simple concept at CAF Canada, known as the three Rs. That is, regulatory compliance, [00:02:00] risk management, and reputation protection. Everything we do at CAF Canada follows these principles. Next slide. CAF Canada is part of the worldwide CAF movement. It’s also part of a movement here in North America that includes CAF America. You can see in the slide here, partners that we have throughout the world and the parent organization, Charities Aid Foundation in the UK. Next slide.

We’re going to get right into [00:02:30] this. Jessie Krafft is joining us, as you heard. Jessie, let’s get started by setting the stage. Parliament passed a law last June. Take us through the timeline that starts with parliament’s act and takes us through the anticipated final guidance.

Jessie Krafft: Yes. Thank you, Ted, and it’s great to be here. Yes, just to share the timeline, first of all, and where we are right now because we are still in the draft guidance phase. In June, the CRA released this, what they call the Budget [00:03:00] Implementation Act of 2022, which proposed these new rules for qualifying disbursements from Canadian qualified donees.

Since then, we’ve been in a waiting phase while we are waiting for the CRA to come out with more information on the implementation of these rules. On November 30th, they released this draft guidance on how to comply with the new rules, which is mostly what we’ll be discussing today is the content of that draft guidance. [00:03:30] Currently we’re still in the public comment period of that draft guidance.

The CRA has solicited any comments from the public, questions, things that the guidance might have missed or might need to clarify. That public comment period will end on January 31st, and then the anticipated target date for final guidance is April 1st. We’re still not totally sure that’s the date, but that’s what the CRA has said that they hope they will release final guidance [00:04:00] by that date.

Ted: A lot in the draft guidance that we can talk about today.

Jessie: There is a huge amount, actually, in the draft guidance. We were very surprised with a 45-page document with the guidance, but actually, it’s incredibly helpful and it has a lot more information than we were anticipating in it. There’s definitely a lot to share even though we are in the draft period right now.

Ted: Go to the next slide. Jessie, this seems like a good time, since we don’t have the [00:04:30] final guidance and we have the draft guidance, for all of our listeners of the webinar today. Let’s take a step back and take a look at the rules that existed before June, 2022 and still will exist after. Making sure that we understand exactly what the requirements for funding charitable projects outside Canada have been as we start looking at what they may become.

Jessie: Yes, absolutely. It’s really important [00:05:00] to talk about these current rules first because most importantly to note, these are not going away. This will remain an option for Canadian charities, Canadian qualified donees that would like to work with non-qualified donees. Everything that I’ll say here in the current rule and in the prior option still stands and is still an option for giving.

Right now there are two options under what the CRA called the own activities rule. Firstly, [00:05:30] the qualified donee themself can carry out their own charitable activities right now, and there are a few ways that they can carry out their own activities. One is, of course, through their own personnel or volunteers and running their own programs just within Canada or even outside of Canada with personnel that they’ve hired or volunteers that are working with them.

Or they can choose to hire an intermediary organization, such as a consultant or a contractor. This is actually the option that CAF [00:06:00] Canada has always utilized, and we’ll get into a lot more detail on how we currently go through that process of hiring a contractor and hiring them to undertake a project on our behalf. Then there’s this second option here where qualified donees can undertake activities with certain organizations that are designated as qualified donees and given that special status, but aren’t actually registered as charities in Canada.

There are [00:06:30] a few that are in this category. One is there are certain registered universities outside of Canada that fit into this category. A registered charitable organization to which Her Majesty and the right of Canada has made a gift, and then the United Nations and its agencies also qualify. Contributions can be made to organizations under this option too as well.

What’s really important about the way that we currently operate is that we have complete direction and control as [00:07:00] the organization that’s contracting the work over the project. It really creates this contractual relationship between the Canadian charity and the foreign charity who’s undertaking that work, which requires a contractor’s agreement and strict oversight and control requirements. As it stands, it’s a pretty laborious process and requires the Canadian charity to have a significant amount of control outside of what you’d normally [00:07:30] consider a grounded relationship.

Ted: That’s right. It’s very clear when you read through the current rules that CRA is doing everything that it can, not that they’re using our nomenclature of the three Rs, but really help manage risk, make sure that there’s regulatory compliance, and by doing that protect reputations. We can go to the next slide. Jessie, one of the things that I always love about doing webinars with you is you take really dense and difficult content and make it so much easier for everybody to [00:08:00] understand. The description that you provided for that regulatory compliance is very easy to understand when you listen to Jessie Krafft. For a lot of people, these things can be very complicated, so let’s go back to where you started on the timeline with the Budget Implementation Act of 2022.

Now, what will change under the draft guidance, and then obviously as we look to potentially, we can’t actually predict what CRA will have in the final guidance, but you can see in this document the direction [00:08:30] that they’re going, and because we’ve been at this for more than a decade here in Canada, we can sort of see where this is going. We can give some good guidance on this. Help us understand what we think started with the act and is going to go through to the final.

Jessie: Yes. What you’re seeing here in italics is the actual text that came from the Budget Implementation Act. This is not the entirety of everything that was new within the act, but this is the bulk of it [00:09:00] and the most substantive change for qualifying disbursements from charities. This section really describes what type of disbursement a charity can make by way of gift or otherwise making resources available.

Previously, the own activities rule that I described was within Section B here, but really what the new text is in orange here, and which says that the new requirement is that [00:09:30] the charities have the ability to maintain documentation sufficient to demonstrate that the purpose for which to the disbursement is made and that the disbursement is exclusively applied by the grantee organization to charitable activities in furtherance of that charitable purpose, which we’ll get into a little bit more later too. This is really the bulk of the change. We had of course a lot of questions that remained unanswered when this came out, but the guidance has really clarified a lot of what this text means. [00:10:00] I think we can go to the next slide.

Ted: With these new rules, taking a look at the difference. You’ve outlined their own activities rule and helped everyone understand a very dense content there, and now you’ve shared with us the new language. As you shared with us, we’ve got over 40 pages of the early advice or guidance from CRA. [00:10:30] What we want to do in this webinar is, of course, plow through that and help everyone who’s listening today be compliant and know what compliance looks like. Let’s take an overall look, and if you can share with us, what are the most significant differences between the own activities rule and now the new rules that we’re looking to come into play here.

Jessie: What I’ve listed here are some of, there are a lot of differences between the two, but these are some of the overarching considerations [00:11:00] and differences that we’ve identified between the two. Firstly, under this new model, the grantee retains the autonomy to carry out its own programs, and they’re not controlled by a project agreement nor through a hierarchy with the charity or grantor organization in charge, which really enables a partnership rather than top-down control, which I can’t overstate how important this is. There’s a really important discourse in philanthropy around [00:11:30] power dynamics between donors and grantees.

This is a really important and significant change in Canadian legislation that enables us to have that conversation in a more meaningful way when we’re talking about cross-border giving from Canada to organizations around the world. This is a really significant and important difference highlighted here.

Another significant difference is that grants can now support existing activities of the grantee, [00:12:00] where previously, in the own activities rule, we had to isolate our own project. CAF Canada, we couldn’t support an existing scholarship program, for example, we had to build our own scholarship program and contract that work to the charity that we were working with, the contractor.

The difference now is that we can now make grants to support existing activities of that grantee that may be supported by other [00:12:30] non-CAF Canada donors. That really opens up a lot of opportunity both for donors  to advance grants to certain projects that might exist already as well as to our partner grantees on the ground.

Ted: Jessie, just for our listeners, just to drive that home, the number of times that donors have been disappointed that they couldn’t participate in a capital campaign because of that rule, this really [00:13:00] brings everybody back to being able to be part of campaigns that they’d like to be part of and join with other philanthropists in doing so.

Jessie: Yes, absolutely. It opens up a huge amount of opportunity for both sides. Under this new rule, we can work with grant agreements instead of a contractor agreement, which I’ll get into a little bit later. The grantor is not required to provide ongoing instructions to the grantee on how to undertake the project [00:13:30] and steps that it needs to take along the way, and we don’t otherwise need to direct and control the program.

However, and we’ll talk about this a lot later, there are still reporting and accountability requirements. It’s not just an unrestricted grant, make the grant and we walk away. There’s still a lot of important accountability measures and things that we have to take so that we can report back to the CRA that we are undertaking our charitable purpose and we are assured that our funds are being used for approved [00:14:00] charitable purposes.

Ted: Jessie, a lot of us have been concerned for a number of years of the power dynamic between funders and grantees. This strips away some of that built-in power control issues that really have concerned a lot of people. Once again, a step in the right direction.

Jessie: Absolutely. These tables at the bottom [00:14:30] show the two different options that we have now. Carrying on our own activities as well as making qualified disbursements through gifts to qualified donees or grants to non-qualified donees. It’s still important to note here that there’s a distinction between gifts and grants on the table on the right-hand side, which is important because there’s an element of the ability to make unrestricted gifts to qualified donees versus the [00:15:00] need to make grants, having a grant agreement and accountability measures to non-qualified donees.

Ted: Let’s go to the next slide, because we do want to focus and make sure that all of our listeners do pick up on the point that you were just making. That is that for all the differences that this law and the new guidance brings into it, there are significant similarities that we need to talk about. This is a good time to remind everybody that this is still [00:15:30] based on the current standards or the guidance that’s been put out. This is not final guidance, but these are some of the things that we’re seeing that are likely to be in the final compliance guidance.

Jessie: I would say, there’s a lot that remains the same between the new and the old rules, but most importantly, and I highlight this because I know anecdotally and through articles I’ve read [00:16:00] in the past that this is misunderstood in the sector to some extent, and that not everyone is paying attention to this current rule, but it is so important that any Canadian charity in all of your activities is ensuring that you are following the charitable objects that the CRA has approved for your organization within your governance structure.

We do have the ability to apply to the CRA to add new charitable objects if you’d like to do something outside, [00:16:30] and CAF Canada’s done that a few times actually, and we’re thinking about working on doing that again perhaps, but it is so important that you ensure that any gifts or any grants that you make still fall within the description of the charitable objects in your governance because if you fall outside of that, then you’re automatically out of compliance with the CRA. Any grant that we make will strictly follow the approved objects that we have in place already.

[00:17:00] Now, just to clarify that a little bit, one of our approved objects, CAF Canada’s approved objects, is to make gifts to qualified donees. We have the broad capability of making gifts to currently qualified donees, but when non-qualified donees come into play, it’s important that we follow those objects. That does not change that, it’s staying the same.

As I mentioned, the prior own activities rule is still in place as an option. As we [00:17:30] explore what this new framework will look like in our own internal protocols, and then how we work with our grantee partners, we’ll be looking at how we’re still using the prior rules and how that comes to play.

Along the lines of number one, the standard definitions of being a qualified donee and the types of activity that can be undertaken are all the same. You still need to follow those same [00:18:00] requirements as a charitable organization, which includes maintaining public benefit status requirements and things like that. That’s really important.

There were always monitoring and reporting requirements to the CRA and requirements to document your activities in a way that if you were audited you can show your trail of decision making and how you’re accounting for your funds and ensuring that funds are being spent on your charitable objects and along the lines of what a charity [00:18:30] can do. That’s all still very important.

There is still a requirement to ensure that funds are tracked separately. Your grantees need to maintain separate books or a separate bank account to manage the grants that you’re making, but for the funds you’re just reviewing for projects or whatever it might be, but that grantee partner needs to maintain the ability to report back on the specific use of funds. That has always been the [00:19:00] case and will remain the same in these new regulations.

Ted: Let’s move on to the next slide. Jessie, as you’ve mentioned before, and as I understand, the rigid requirements of discretionary and control are no longer likely to be required for all cross-border funding. Obviously, if you use those regulations, you still have to maintain discretion and control, but under the new guidance, [00:19:30] moving in the direction of still maintaining accountability in this process, help us understand what all that means in the light of change where the accountability still lies.

Jessie: Within this, the charity still needs to maintain this documentation that demonstrates specifically the purpose for which the grant was made. Again, I made this point earlier, but these are not unrestricted grants and [sound cut] exclusively charitable [00:20:00] purpose of the grant that is aligned with the charitable project of the Canadian grantor.

Before I go into these accountability tools that the CRA laid out within this document, it’s actually really interesting to see how the CRA laid this out in the draft guidance, because these are actually suggested tools that can be used in this grant-making process to ensure accountability. They’re not saying that these are [00:20:30] required tools, that this is the formula that you have to follow. This is just their suggestion for how to maintain proper accountability aligned to the standards that they would expect.

Now, this is again, just draft guidance, so we’ll see if that suggestion remains the same, but I can say that having done this, having managed a similar process on America’s side for a long time, these are really best practices. [ 00:21:00] Their suggestions are really important tools that if they were made suggestions everyone should consider in the grant-making that they do.

These are some of the accountability tools that they laid out. Firstly, undertaking a due diligence review of the grantee. That’s making sure you know that grantee. There are a lot of steps that CAF Canada takes currently in our current relationships to do this. we’re reviewing [00:21:30] financial statements and governing documents and registration status and doing background checks on board members and senior staff, which I’ll get into the importance of that later, and generally undertaking a review of that organization so we understand what they do, who they are, is there any negative media tied to them, have they undertaken similar projects to the ones that we’ll be funding?

Do they have the expertise to do that? Do we have reasonable expectations that [00:22:00] they’ll complete the activities in the way that they’re saying that they will? So general due diligence review is being recommended by the CRA and that’s already a key part of our process.

Then second is a description of that grant activity. This is something we would normally include, we’ll be including within the grant agreement structure of understanding the intended purpose, making sure it is aligned with our approved objects and then tying that [00:22:30] grant agreement to it.

Third is that written agreement, which within this guidance the CRA has allowed or given a number of bullet points on what should be included, the types of things that should be included within that grant agreement, so that’s really helpful guidance that’s included there. Monitoring and reporting requirements. Within that grant agreement, you should be clear with your partner on the reporting that you’ll be requiring [00:23:00] from them so they can plan ahead for that. This reporting would be what allows you to maintain that oversight and ensure that funds are being spent in a way that were agreed upon so that you can ensure that your funds are being used in a charitable way that they were intended.

In some cases you might have installment schedules in higher risk scenarios, so that is something we always consider for very new organizations or [00:23:30] in higher risk areas. If it’s a large grant, an installment schedule or a transfer schedule might be good to consider. Then requiring separately tracked funds so that they could report back.

These were the tools that the CRA recommended for how to maintain this accountability. One thing I just want to note is that they even provided scenarios and some conversation around [00:24:00] what should happen when extensive due diligence may not be possible. One thing that they highlighted, which is really important, is that in some cases, such as in emergency situations or in crises or during disasters, it might not be possible to undertake all of your normal accountability standards and undertake the full due diligence process.

It’s really important to note that because it opens up a huge amount of ability and [00:24:30] possibility for Canadian charities to directly support local relief efforts quickly during a time of crisis, so of course there’s a risk-based way of going about that, but I found it really impactful that they highlighted that and gave opportunities to modify your process during time of crisis because it’s really important to get money directly on the ground quickly during a time of crisis.

Ted: That’s right. When you’re in the middle of a disaster or war zone, or [00:25:00] your offices are flooded, while you might like to think that you have all of your documents available digitally, and you can go and get your bylaws and your governing documents and all the information about your board members, that may not be entirely possible at that moment, and it doesn’t mean that, under this guidance, that necessarily funding would have to stop.

Although the point that we’re making here is it doesn’t mean that accountability and regulations go out the door. What it does mean is that you have to [00:25:30] maintain your due diligence and have good faith effort to follow all of the good practices that you’ve pointed out.

If I can just ask you to expand on that, because you’ve mentioned a couple of times that while much of this is new and changing for Canadian donors, much of this is based on best practices. What do you mean by best practices? Where do those come from or how are we aware of those?

Jessie: [00:26:00] From a CAF Canada perspective, CAF Canada is actually a subsidiary of CAF America. CAF America for over 30 years has been undertaking cross-border giving from the United States and founded CAF Canada to do the same work from Canada. CAF America, as I mentioned, have been doing this for 30 years, and these regulations are actually pretty similar to the regulations in the United States, which we were really [00:26:30] interested and excited to see because, to the point Ted is making, we have enormous expertise in this area already.

Actually some of these accountability tools follow pretty closely what we do as a best practice, what we’ve learned over our 30 years of doing this work are really important and good ways of maintaining accountability and understanding how our funds are being expended and taking this, which I’ll go into next, [00:27:00] taking this risk-based approach to grant making, so we really do have a lot of expertise in this that’s particularly given that these regulations are pretty similar to the US goals.

Ted: One other thing I just want to ask you too, because you’ve also mentioned it on the slide, it talks about aligning with your charitable objects. Every registered charity in Canada has charitable objects, but what are they? What’s a charitable object?

Jessie: When you apply for charitable status [00:27:30] as a charity or as a qualified donee in Canada, you have to apply– within your articles of incorporation, you tell the CRA the charitable objects for what you would like to operate. So all of your programs and activities will fall under these objects that are written, initially, within your articles of incorporation. Then, as I mentioned earlier, you can add to them later with CRA approval, and there’s a process for doing so.

Ted: For instance, [00:28:00] Jessie, it might be relief of poverty or advancing education or religion or other things that courts and government in Canada have specifically determined to be charitable. For any charity, you can start in one place, and this is a point that you’ve made a couple of times, where when CAF Canada was founded a decade ago, we had certain charitable objects of things that we were certain that we were going to be involved with, and over time, and more and more donors being [00:28:30] creative and looking to really make a difference, we’ve added to those.

I think we’ve actually added objects to CAF Canada every couple of years where there’s more and different charitable activities that we would like to be part of, but we can’t fund them if we don’t have CRA approval to be able to be acting in those areas. That’s what the charitable objects are for and why alignment with your own charitable objects are so important and part of regulation, because since you’re a charity doesn’t mean that you’re there [00:29:00] to fund everything or to do everything. You’re there to act on the charitable activities that you’re approved to by CRA so that that’s publicly known.

Jessie: Just a comment on the risk-based approach, because I think this was also another significant note within this accountability standard that the CRA mentioned, and it’s a core piece of our operation already [00:29:30] is that it’s necessary to take what we call a risk-based approach to grant-making, where you are allowing yourself flexibility as a grantor to modify your approach based on the scenario you’re confronted with.

What we’ve learned over the years is that enabling this flexibility in your process will also enable you to work with organizations that might find your process more challenging to complete. [00:30:00] For example, a very small local grassroots organization that might not have audited financials. If you require an audited financial statement, for example, they might not be able to comply with that. It doesn’t mean that they’re a bad organization, but what you would do in that scenario is institute other due diligence requirements or grant installments or other things like that to take that risk-based approach and adjust your process accordingly.[00:30:30]

It really allows you as the grantor to work with a wide variety of organizations, and not just focus on the larger low-risk organizations. It gives us the ability to just work in a lot of different scenarios, and the CRA seems to push this forward as well. They have an interesting table within this guidance that has different scenarios and what the CRA would consider high, medium, and low risk and some of their suggested [00:31:00] accountability tools within those different risk level scenarios.

It’s actually a really useful guide to see how the CRA thinks about risk. It’s actually pretty similar to the approach that the US Department of Treasury took with this years ago. They published this risk matrix in the charitable sector. That’s been helpful in guiding America’s work. It’s really interesting to see that within this guidance as well.

Ted: Again, best practice for [00:31:30] a lot of organizations, they’re not taking risk into consideration when they’re making grants. This guidance is suggesting, and advocating that that become a standard part of cross-border grantmaking. Let’s move on to the next slide because Jessie, where there are compliance requirements there is reporting, and reporting is a big part of any government’s desire and interest to oversee the programs that they have. What are CRA’s requirements? [00:32:00]

Jessie: Actually, some of this is unchanged from the previous roles, but personally reporting part requirements of CRA, as I mentioned earlier, you have to maintain adequate books and records to show that you’re operating in accordance with charity’s regulations and income tax. Through the process as you’re making decisions, in what grants you’re funding or how you’re managing [00:32:30] each of the grants that you’re making, you should have good documentation to show the efforts that you put into reviewing these entities and making those grant-making decisions.

Books and records are important. Having a paper trail is important. Secondly, so this is more related to the new grant-making regime than grant-making non-qualified donees, the CRA has said there are three things that you need to do for their reporting requirements. One, the grant needs to meet the accountability requirements, you need to be able to verify the use of resources so this would be through the ongoing reporting from the organization as they’re spending their funds, and that the grantee continues to use the grants resources on the purposes that are out in the grant’s terms. Ensuring that there’s general compliance with the original purpose of background agreement.

[00:33:30] Lastly, there is of course, always T-3010 reporting, the CRA public information return for charities for qualified donees. On this T-3010, you’ll be asked to report on certain things such as the name of the grantee, the purpose of each grant made to the grantee, and the total amount granted to the grantee during that taxation year. You’ll need to have records on all these things and you can ultimately report on them in your T-3010.

Ted: For everybody listening today, this is a good [00:34:00] checklist because a lot of this has not changed. Are you keeping proper records on the grants that you’re making right now or the grants that you’re receiving right now? If not good to go back to this because as these new regulations, new guidance rolls out, it’s not going to be less of a reporting regime. 

Jessie, as we’ve mentioned, CRA has not issued final guidance on this topic yet, but there is an [00:34:30] area that CAF Canada, just want to make note of that we’re hoping will become clearer as we read from the initial guidance on through to the final guidance. Let’s just share an area that we think is deserving of a little bit more guidance from CRA.

Jessie: This was an area that we made specific note of in the original Implementation Act that came out in June because the original act seem to suggest [00:35:00] that if a qualified donee, a Canadian charity is receiving donations from donors that came attached to grant suggestions or grant advice or, advice for how the funds were to be utilized, that those organizations that are donor advised, or funds that were donor-advised may not be able to rely on these new rules and might still have to comply with the own activities rule instead of being able to [00:35:30] switch to the new grant-making regulations.

That was a particular area of concern until this guidance came out, which the draft guidance did clarify this quite a bit which gave us a lot of comfort and we’re hoping that the assumptions made in the guidance in the notes that the CRA shared will go into the final guidance. Essentially, what this is saying [00:36:00] is that it’s really important that Canadian charity does not act as a conduit where the donor is making a contribution to that charity, and then the charity itself is required or bound by the direction that donor is giving.

The donor can’t give funds to us and say, “You have to send this money to this charity or return the funds to me as the donor.” That would create a conduit scenario where we’re just a passthrough [00:36:30] entity, and in those scenarios, we wouldn’t have discretion and control over the use of the funds. What the CRA is saying is that you can’t be a conduit, and that discretion and control are incredibly important.

There are a number of ways to show that you have that discretion and control through the due diligence process. If you’re undertaking due diligence, and there are certain grants that you won’t be able to make, and you [00:37:00] make that clear, that shows direction or discretion, and control in those scenarios. It also needs to be really disclosed to donors on the website, on gift forms, on any of the correspondence with those donors that any advice that they’re giving is advice alone, and that once they make a contribution, that contribution is under the full discretion and control of the Canadian charity that have been received of it, [00:37:30] and that we cannot make refunds.

This is actually an environment in which we’re very used to working both in CAF America and CAF Canada. We do allow our donors to make grant suggestions, but we do retain full discretion and control over the use of the funds. We do go back to donors if we can’t make that grant for any reason and explain to them why. The CRA [00:38:00] did lay out these requirements, and they align with what we already do. That’s great and we’re really hopeful that it will stay this way. With the final guidance we’ll see what happens.

Ted: It seems in this guidance, and it’s a good best practice, as you’re mentioning, that it’s almost as much guidance for the charity receiving the contribution as it is for donors to say you can’t make a contribution through a charity, advising it onto another project, and then [00:38:30] control that and project. You can’t have it both ways. You’re either making the contribution receiving a tax receipt for the contribution you’re making, or you can go directly to that charity and have some control there but you can’t do it both ways.

Jessie: That’s right, yes.

Ted: Jessie, everyone joining our webinar today, of course, wants to know what best practices are. They want to understand what regulatory compliance looks like and CAF [00:39:00] Canada and throughout the CAF family, we start with compliance but we always go further than just the letter of the law and just a compliance, and overlay that with best practices of how we can, again, make sure that there’s full regulatory compliance, but there’s risk management, and that we’re protecting the reputations not just of the donor, making the contribution, but also the charity and the community where the funds are being spent as well.

Can you help us understand what those [00:39:30] best practices are and some of the guideposts along the way that we would urge all of our listeners today to keep in mind?

Jessie: Yes, absolutely. While in many ways these regulations that we’ve been talking about today make cross-border grant-making a bit easier from Canada, there’s still a significant level of expertise that’s needed to navigate all the ins and outs of cross-border giving. Even the CRA rules are themselves nuanced and require skilled due diligence, but there’s a lot more than that [00:40:00] that we look at when we make cross-border grants. In this first box, firstly, we have to consider what we call outflow regulations. These are the Canadian regulations that we’ve been discussing today, as well as anti-terrorist, anti-money laundering, and anti-bribery regulations we haven’t gotten to yet. That’s an outflow from Canada.

Further to that, many many countries and a growing number of countries have also inflow considerations, inflow regulations that govern how foreign [00:40:30] charitable funds can enter those countries. An increasing number of countries have requirements for prior approval. Sometimes, like in India, for example, organizations receiving foreign funds either have to have prior permission from the government or they can register under the Foreign Contribution Regulations Act, which enables them to receive foreign funds from any donor but there are lots of rules that go along with that.

[00:41:00] That type of regulation that’s within India, for example, is increasingly being utilized around the world. If you make a grant to an organization that doesn’t have that, you could put them at risk of shutting them down or putting them out of compliance with their local regulations. It’s really important that you understand those local requirements. Unfortunately, your charity partners may not always know and understand those requirements themselves.

While it seems like [00:41:30] you should be able to rely on those partners, if prep order giving is something you’re doing broadly, it is something you as the donor grantor also need to be very aware of because their rules are rapidly changing. In some cases, if you’re doing it wrong, you could also be shut out of the country.

We’ve certainly seen that happen. This is not as simple as CRA regulations done, make the grant. There’s a lot more [00:42:00] to consider here.

I could go on the slide for an hour going through all these different regulations, I do presentations just on this topic alone. If you have questions about this, I’m happy to answer that later. The third thing you really need to consider is the navigation of financial institutions themselves. Sometimes banks, for example, will decide that they’re just not getting into certain high-risk areas even if the sanctions, regimes, or otherwise will allow you to do [00:42:30] so.

We’re seeing that as you can imagine, in places like Russia and Syria and places where there are still pathways for giving to charitable purposes, but banks just won’t do it, and they have the ability to make those decisions. There are also local banking requirements and things like that to consider as well within this. This is all within the scope of CAF Canada’s due diligence factor, the partnership we build with grantees, and [00:43:00] we sometimes help grantees get local permissions for receiving funds all within the package of what we do.

Ted: That’s right. Let’s go to the next slide, Jessie. It’s not unrelated to the topic that you just raised. Certainly related to banks’ decisions to be involved in one way or another is the topic of anti-terrorism. We want to draw our listeners, our participants, today’s attention to a checklist that CRA has put together that can help charities [00:43:30] make sure because this is not something that can be ignored.

Jessie: Yes. Anti-terrorism was specifically called out in this guidance, which I was really pleased to see. Then they pointed the readers toward this checklist for charities on avoiding terrorist abuse, which is really a useful guide for how to ensure that you’re not inadvertently funding terrorist activities, or violating sanctions or things like that. I won’t go into that [00:44:00] full checklist, it’s within that guidance, but I just want to share a little bit about how CAF Canada navigates this. Which does in many ways follow those checklists.

As I mentioned earlier, one of the due diligence steps that we take is we run background checks on board members and senior staff, and then the organization itself. Uncover any sanctions or criminal activity, understand if there are any politically exposed persons at the organization in an attempt to look at anti-bribery measures potentially. [00:44:30] That’s something we have subscriptions to World Watch List and databases that enable us to do that.

We also undertake a negative media review on the organization. We also in our review will look at the donor-charity relationship to understand whether there’s potential for issues there with bribery or donor benefit or things like that. As always, you just need to document your due diligence process. [00:45:00] If you are doing checks like this you document that process and the decisions that you’re making.

Ted: CRA has certainly been comprehensive in their draft guidance over 40 pages, but before we take a look at a quick case study can you share some other interesting observations that we found in this document?

Jessie: Yes, firstly, and I said this, the guidance was really detailed. [00:45:30] The recommendations that they made were really helpful. That was really great to see. As I mentioned, anti-terrorism was addressed, but not anti-bribery or anti-money laundering, which are principles that we do include in our due diligence process, though it was interesting that they didn’t mention those others, but perhaps they will in the final.

There were also provisions for granting for capital assets and real property which was really great to see and we won’t be able to get into a lot of detail about today, but [00:46:00] from the CRA’s perspective, one of the most important considerations in granting funds or real property itself is that asset is used for charitable purposes throughout its useful life. This is something we’re used to navigating already but it’s great to have the CRA’s guidance on this topic specifically because we’re always asked to purchase important assets like ambulances or healthcare equipment. Just a really important thing.

That was great to see. [00:46:30] Then finally, as I’ve mentioned, the approach that they’ve taken is pretty similar to the IRS regulations in the United States, which is really great news for CAF Canada and the subsidiary of CAF America that’s been doing this for a long time.

Ted: When we say the regulations we’re specifically referring to expenditure responsibility as one of two processes in the US. We’ve talked a lot about government regulations, but then you have to actually run your cross-border program, [00:47:00] and there’s a practical side of how you actually administer these. What is the difference potentially between a contractor agreement and a grant agreement as two very different mechanisms for cross-border giving once the final guidance is received?

Jessie: This slide really just takes you through a case study of these two different scenarios with the same project in mind. [00:47:30] On the top line of both of these is making sure we’re following our CAF Canada charitable object. In this project, the charitable object that we’re going with is promoting the welfare of animals. In both, it’s of utmost importance that we’re doing a project within that object. In the contractor side, CAF Canada contracted with the charity in Mexico to rescue 78 abused neglected farm animals.

[00:48:00] This project under this scenario was designed with the contractor and funded entirely by CAF Canada. This entire project was done specifically under the instruction and contractor agreement with CAF Canada and with CAF Canada’s own project. No other donor were involved outside of Canada and no other donors were able to contribute to this project. It was just these animals that we provided food, transportation [00:48:30], and medical assistance to in Mexico.

That contractor agreement makes it really clear that CAF Canada has oversight and control over the project and that we were setting clear timelines and deliverables and strict reporting requirements and oversight along the way. Taking that same project, pretending that we had this grant agreement scenario at the time, again we have the same CAF Canada charitable object. In this scenario, a [00:49:00] donor makes us a grant suggestion to CAF Canada for this organization in Mexico. We contact that grantee in Mexico to make them aware of this possible charitable grant for their animal welfare activities.

The grantee then completes this application with a proposal for the grant for both decided by the grantee. This is really important. The grantee is in the position of saying, “Okay, great, here’s the project we want to support with this grant,” and [00:49:30] applies to CAF Canada for that grant, which we then of course review and approve and make sure this is charitable, make sure this is something we can fund. If we agree, and it is something we can fund, then the grant agreement is assigned, including a reporting schedule. In the scenario, not CAF Canada’s own project and other potentially non-CAF Canada owners can also contribute to it. There’s some pretty big distinctions in this process.

Ted: Which will in and of itself cut down on the paperwork and [00:50:00] the amount of time that it takes to get a project approved because it can combine funds with other donors and do bigger things as opposed to maybe a series of very small things.

Jessie: Exactly, yes.

Ted: Jesse, we’ve got hundreds of people who have registered for this webinar which is obviously a very, very big topic, and we don’t have final guidance right now. What should we be considering and anticipating as we get closer to final guidance? [00:50:30].

Jessie: We do have a lot of charities outside of Canada on this webinar so just wanted to share a few things for you that you might already be working with us and are wondering what’s next for this. Again, we’re not expecting final guidance until later but as of now, we anticipate that the current project agreements will remain in place and will not have immediate changes, so more to come on that. If you do have a current relationship with us and a contractor agreement, [00:51:00] that will stay as is for now.

Really, depending on this final guidance, the goal is for us to move to this new grant-making model with our charity partners where feasible. Primarily this would apply to future grant agreements and future projects that we’re funding. In order to do this we will have to overhaul our application templates and our grant agreements. We’ve already started work on this, although in a slower fashion given that we [00:51:30] don’t have final guidance yet we don’t want to waste too much time if something big changes.

Ted: Well, because there may be something new in the final guidance that we don’t anticipate.

Jessie: We never know. I will say that we will host another webinar at a later date specifically catered to our charity partners to make the next steps clear and to give really clear guidance. We don’t want to do that quite yet because we’re still not sure of how we’re going to practically implement all of this just based on the final guidance. Those are just [00:52:00] a few things to consider for our charity partners on the call. We will be in touch with you, don’t worry.

Ted: Just to let our listeners know, we just have one more slide that will go very quickly then we’ll go to questions. We have a lot of questions today. What we’ll do is we’re going to end the webinar on time, we’ll get to as many questions as we can but we will answer all of your questions and send those out to everyone who is registered. Whether or not your question gets answered during this webinar, your [00:52:30] question will get answered and we will send that out to everyone.

Jessie, we’ve covered a lot today but before we look to the end of the webinar and the questions and answers, what services does CAF Canada have and how do we organize the way that we’re working with charities right now and with donors? How does funding get organized right now?

Jessie: Right now we have a few different options and some of this terminology is probably going to change with these new [00:53:00] roles so more to come. Right now we have the ability for donors to make a contribution to CAF Canada to support a single project without entering into a long-term commitment or opening a fund with us so that is absolutely possible anytime. We do have the option for donors to open funds with us for ongoing relationships for managing all of their philanthropy within their grant-making portfolio, so we do have a lot of donors [00:53:30] that utilize that option.

Then we also have a friend fund where foreign charities can open a fund with CAF Canada, and then your Canadian donors can make contributions into that fund and they’ll aggregate in that fund. Then we can make at this point project distributions to you because we’re still currently under a contractor agreement with us but that will likely change later. We will work with you to [00:54:00] build a project and enter into that contractor agreement with you with the funds that are donated by your Canadian donors.

Ted: Thank you Jessie, and so we’ll turn to the Q&A session. We do have a number of questions that I’ll ask of you. As I said before we will answer all of your questions so please put your questions in the Q&A function at the bottom of your screen and if we don’t get to them today we will as we said before answer those and send those out. If [00:54:30] after today’s webinar you’re watching this afterward, you didn’t get a chance to ask a question in the chat, you can email info@cafcanada.ca and ask a question afterwards and we will make sure that we get the answers back to you.

Jessie, let’s start off by asking are we talking about the proposed legislation or regulations. Please say a bit about CRA, and does this apply only to donors who reside in Canada who want to give internationally? Just asking for clarification. In [00:55:00] terms of donors who are giving and the grants or project funding that would come from that these are all Canadians?

Jessie: That’s right. Yes, so these rules are specifically for Canadian qualified donees with non-qualified donees.

Ted: In terms of the donor and the tax receding and where the funds are coming from, these regulations will cover donors [00:55:30] who are giving from Canada looking to give either in Canada or outside of Canada.

Jessie: That’s correct. Yes.

Ted: Okay. Terrific. I wanted to then ask you, you mentioned that there is still some clarification needed about the anti-directed giving, is there a possibility that CAF Canada may not be able to rely on these new grant-making rules since many of the contributions you receive are donor advised, where the donor is providing advice on the project to support? This is one of the [00:56:00] areas of clarification that you were talking about, can you go back over that because obviously this attendee today is also looking at that as being a bit confusing?

Jessie: Yes, it certainly is, particularly because the way we were reading the initial legislation versus the draft guidance is very different. The draft guidance gave us a lot of comfort that it’s very likely that we will be able to rely on these new rules with the caveat that I mentioned earlier about ensuring that [00:56:30] we maintain discretion and control over the use of the funds and that we’re not a conduit.

Again, yes that is to be fully determined in the final guidance but the indications within this draft guidance are that CAF Canada will be able to do that as long as we follow those certain caveats.

Ted: Yes, so we’re expecting that this is going to be a problem that we think this is actually going to go quite well. Jessie, you’ve mentioned several times the concept of conduit and not being a conduit, not serving as a conduit, [00:57:00] what does that mean in a charitable sense?

Jessie: A conduit relationship would really demonstrate a pass-through where perhaps a contribution is made but there is no question that the directions or the advice of that donor will be followed, so there’s no approval process or due diligence process or process that demonstrates that we have discretion and control. [00:57:30] It’s really important that as a grantor within your protocols and within the process you set forth that you demonstrate that you do have a process and you do have an approval structure for how grants are approved and that you’re not blindly following the advice that donors are giving or the directions of donors.

Ted: Standards that would clearly spell out when you might not make that grant. The funds have been received, the advice has been received but you might not make that [00:58:00] grant. I think this is even more important today where funds are moving electronically and might be given online and it just might seem more efficient to just pass that on to the charity. Then you are serving as a conduit, there is no value add, you’re not doing your due diligence, and then you are in violation of regulations.

Jessie, we’re right on time but I do want to ask one more question because it speaks to this new dual approach to possibly project funding [00:58:30] versus grant making. The corporate structure of the grantee, a not-profit versus a for-profit, is it possible for for-profits to be funded for charitable purposes, and for not-for-profit organizations to receive grants? How does this structure speak to who the grantee might be?

Jessie: That’s a really important question so the grantees in this case, non-qualified donees can be foreign charities or organizations [00:59:00] such as non-profit or no. What we anticipate is that for-profit entities can still undertake charitable activities in certain circumstances. Under expenditure responsibility rules in the United States, we are able to grant to organizations that might be for-profit but do have specific charitable purposes.

In this case, based on what we’re reading right now, final guidance to be determined, non-qualified donee can [00:59:30] also mean for example a not-for-profit organization that can’t issue tax or even potentially another type of entity with which the Canadian charity has a grant-making relationship but still is ensuring again that charitable purpose with the grant agreement.

Ted: Like a social enterprise or something like that could potentially fit. We are out of time Jessie, thank you so much for your expertise as you can take complex things and put it right in line [01:00:00] for people to be able to understand. We want to thank everyone for joining us today. As we said this has been recorded we’ll share this recording with you, and we will make sure that we provide robust answers to all the questions that were asked today that we did not get a chance to get to. That concludes CAF Canada’s webinar for today. Thank you.

[01:00:21] [END OF AUDIO]