Unpacking the CRA’s New Tools for Granting to Non-Qualified Donees

Speakers

Jessie Krafft, Interim CEO of CAF Canada
Robert Hayhoe, Partner at Miller Thomson LLP

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Jessie Krafft
Hello. Good afternoon. Thank you so much to everyone for joining today.

We are really excited to be joined by Robert Hayhoe today, as well to start taking you through some of what we have interpreted from the final guidance that was released by the CRA on the new qualifying disbursements rules.

We’ll just take you through a little bit of a road map here. We’ll go through what were the regulations that were in place prior to this new 2023 framework and then we’ll take you through the new tools in summary to share how to approach management of the new disbursement rules.

And then we’ll really dive into after that to some of the best practices on due diligence and crossborder grant making, many of which are actually supported by the new guidance and best practices that we’ve had in place for a long time, but they are enhanced by the new CRCR guidance. Then we’ll talk a little bit about the impact on the sector and we’ll leave time for questions at the end.

We did receive many from the registration, so thank you to those who’ve already submitted questions. But you are welcome, as Nick mentioned, to share further questions in the Q&A and the chat as well the Q&A.

Jessie Krafft
Just looking at the model that was in place prior to the new guidance, essentially what was in place previously was what we call the own activities role and basically qualified donees which is a Canadian charity for those that are not aware of that terminology, we’ll be using that term quite a bit through this. So a qualified donee, if we say that means so under this model, a qualified donee has to carry out its own charitable activities under their own direction and control.

Essentially there are basically two ways of looking at this. Carrying out your own activities means undertaking activities by the charities own personnel, own employees and their volunteers, or by contracting with an intermediary. Contracting with a consultant or a contractor, which could be an organization and there are a few different models that you can take for that.

But essentially the method that we’ve been using with this, that CAF Canada has been using, is through what we call a project agreement where we are basically hiring an organization as a contractor to undertake activities on Calf Canada’s behalf.

Jessie Krafft
That is focused on the charitable objects that have been approved by the CRA for Calf Canada. This is a very specific approach and requires us to have direction and control over those resources that we’re distributing to that contractor and requires us to collect regular reports and have a level of monitoring and supervision over those funds so that we can demonstrate that we have that direction and control, and that’s a really important piece of this.

And then funds through that monitoring, we have to ensure that funds are spent in accordance with that project agreement and that in turn, what this means really is that the funds can’t be commingled with funds from another donor. In this respect, it has to be focused on CAF Canada’s own project.

Because it’s our own activity, our own project, we have to fund a distinct charitable activity of that organization that we are working with them to develop. And to support it through the funds from CAF Canada. And then we also have to have a role in any decisions made by that intermediary to where that project contractor to change something that might happen down the line.

If something changes in the project, which of course happens all the time on the ground, we need to be part of that decision making so we can continue to monitor and have that direction and control over the use of the funds.

This is a great approach in that it enables CAF Canada and other qualified donees to undertake work with other Non-Qualified Donees outside of Canada.

The supplies to organizations in Canada as well that are not qualified donees that are not registered as Canadian charities, but it also enables us to work with organizations outside of Canada. There are actually some challenges with this approach too. As you’ve heard, you know there’s a lot of. There are a lot of control requirements which really promotes this idea of top down donor control.

While philanthropy, itself is moving toward more of a trust based approach, and with the type of control that’s necessary within the own activities model, it doesn’t really enable us to take that sort of trust based approach that’s flexible to localized needs on the ground and flexible to changing context lock really. There are some challenges within that and how we can manage those projects along with those partners.

And then the other challenge that we run into regularly is our inability to support other projects that maybe other donors are already funding or that are funded by monies that the organization already has.

The fact that it has to be our own distinct activity is possible, and we do it all the time, but it does create some challenges if there’s a bigger project that the organization would like to work with us to support.

Jessie Krafft
This is a road map sharing some of the timeline of the new regulation. What I’ve just described are the prior regulations and the ones currently that CAF Canada is using and does enable us to give internationally. But this is the timeline for the new regulation.

In June 2022, the (CRA) released the Budget Implementation Act, which proposed these new rules for qualifying disbursements to Non-Qualified Donees and brought them into the regulation.

However, we’ve really been waiting on guidance from the CRA as to how to deploy and and for more details on what was actually meant by the initial guideline that was released within the Budget Implementation Act.

Then in January 2023 we were able to comment on those that draft guidance for a period of time and then the CRA said that they were expecting to release final guidance based on the draft and the comments there in April 2023.

However, that guidance wasn’t actually released until December 2023, so it’s been a bit of a road to get here, but we do finally have this guidance and have a much better sense of how to manage it and to move forward.

But there’s still some questions that remain that we’ll talk about later in the presentation. And actually I will pass it now over to Robert Hayhoe.

Robert Hayhoe
I will talk a little bit about the new rules.

The other thing about the old rules, just as a bit of an aside, is that not only are they a little bit paternalistic and somewhat hard to administer, they’re much more restrictive than the similar rules that apply in most other developed world countries. The US rules on foreign expenditures, the English rules on foreign expenditures are both much more permissive. That was another criticism of them.

Where did we get to with the new qualifying disbursement rules?

We got to a new system being announced where a charity, a Canadian registered charity, is allowed to make a qualifying disbursement, which is, which includes a disbursement, a Grant, a gift to a Non-Qualified donor.

If some conditions are met, the disbursement has to be consistent with the charitable purpose of the Canadian charity and a charitable purpose of making grants to other registered charities or making grants to qualified Donees isn’t good enough.

So there needs to be an actual, you know, advancement of education, advancement of religion, promotion of health, whatever it is, active charitable purposes in order to make a qualifying disbursement, and particularly foundations that don’t have those, are going to need to go and amend their purposes to allow qualifying disbursements.

The Canadian charity then needs to ensure that its grant to a non-qualified donee furthers the purpose and then the Canadian charity needs to have documentation to show that the Grant exclusively further at one of its charitable purposes. Therefore if a Canadian charity is able to meet those three requirements, sure, the Grant is in furtherance of the charitable purpose.

The Canadian charity has done some due diligence and gets some assurances at the back end, some records, etc. Then it’s possible to make a qualifying disbursement. There is a directed Giving Prohibition that we’ll talk about a little bit more that throws a bit of a monkey wrench into some kinds of qualifying disbursements, but this is the change. This is the sort of brief outline of the change.

Robert Hayhoe
The CRA has issued its guidance on qualifying disbursements and the guidance endeavors to take a generally helpful approach. It, in my view, actually goes a little bit further than the CRA needed to go on this.

The CRA, of course, doesn’t write tax law. Tax law is written by the Department of Finance, passed by Parliament in Canada, and it’s only administered by the CRA.

The CRA has tried to come up with a sensible approach to administering qualifying disbursements and you see on the slide the reference the CG zero 32, which is the CRA’s administrative policy, administrative guidance on this. Take a look at it if you haven’t done so already, it’s, you know, relatively helpful.

What they recommend is that the charity first think about how the qualifying disbursement Grant furthers its charitable purpose. As I’ve said, amend the purpose.

If necessary, they want a charities considering qualifying disbursements to assess the grant’s overall risk level based on factors that are listed in the guidance they then have in the guidance a series of accountability tools that they suggest be implemented in collaboration with the grantee, the grant recipient, and then they want to documentation of the due diligence. That’s both documentation before the grant is made.

Due diligence, then, and then ongoing due diligence during the life of the Grant and frankly for some kinds of grants due to due diligence records reported. This will be necessary into the future after the money has flowed, really depending on whether there are capital assets that survive the end of the payment period.

Robert Hayhoe
The accountability tools that some of the accountability tools that the CRA suggest, they suggest, research and review of the grantee. Make sure that the specific grantee organization is a trustworthy one, that it doesn’t have a history of doing inappropriate things.

Make sure that there’s a good description of the Grant activity and whatever sort of agreement is going to be used. Whatever sort of Grant agreement is going to be used and as an aside on that this era does contemplate the very small grants, very small and low risk grants can be made without a grant agreement.

We would be reluctant to recommend that in any particular circumstances, a simple Grant agreement isn’t that difficult to put in place and we would recommend it as a due diligence tool in all cases. Frankly, they also talk about an accountability tool being monitoring and reporting. That’s not gonna be much different from what is the case now on their own activities.
There’s always going to be a need for monitoring and reporting. (CRA) likes to see a transfer schedule. They don’t like seeing one big grant flowing all at once, and then the activities’ carrying on after the fact. They like to see either payment in arrears or they like to see if it’s going to be payment in advance. Payment in Toronto shows the CRA also likes to see separately tracked funds, which may or may not be appropriate in all circumstances.

That’s going to be an interesting one to see how strictly that gets applied by the CRA because one of the advantages of this proposed qualifying disbursement approach is that it should be possible to pool funds more easily. Which of course would make this accountability tool hard to implement.

Robert Hayhoe
The anti directed giving rule. Until now it’s all been good news. The CRA has the Department of Finance and Parliament and the CRA have backed off a little bit. They’re going to make it easier for Canadian charities to fund quality, Non-Qualified, Donees domestically and internationally.

What is there not to like about that?

Well, the thing that there is not to like about it is that accompanying the new qualifying disbursements rule is a new anti directed Giving rule and what it says is that it Canadian charity can have its registration revoked if it accepts a gift that was granted to that Canadian charity subject to an express or even implicit condition that the charity will make a gift to a non-qualified donate.

(CRA) is really trying to prevent fiscal sponsorship kinds of situations where a Canadian charity receives a gift and then immediately flows it with no accountability onto a foreign organization of some sort, or a non-qualified Donnie that doesn’t even need to be formed.

Robert Hayhoe
That recreates a real issue for organizations like CAF Canada, because you know, on one in my suggestion, not quite accurate view, CAF Canada could be viewed as fitting into that, and indeed not just CAF Canada, but any Canadian charity that fundraises for a particular purpose where somebody might be able to figure out that the Canadian charity is going to implement its programming through another organization in another country, those might all be viewed to fit within this anti directed giving rule.

The anti directed giving rule has been the subject of a fair bit of commentary. Gotten that’s gone back to the CRA. I’ve been involved in writing commentary.

I’ve had discussions with the people with (CRA) who were responsible for drafting the guidance and I think that they’ve cut the CRA has come up with what, in my view, is a relatively sensible approach to the anti directed Giving rule and what they’ve said is that they generally won’t apply the anti director Giving rule so long as donors are merely apply indicating a preference in how they’re donation is applied.

Charities that are going to do qualifying disbursements need to make clear to all of their donors that even if there’s a suggestion from a donor that that suggestion is merely a suggestion, it’s not binding on the Canadian charity.

The charity is Ultimate authority. There’s no refund of the gift if the Canadian charity is unable to make the suggestion qualifying disbursement. And that’s a practical solution.

The concern that it gives rise to, though, is that that’s (CRA) guidance is just guidance.
It doesn’t bind the court in looking at charity behavior, and it doesn’t even mind (CRA) (CRA) is, as a matter of law, allowed to take positions in future audits or future compliance initiatives that are consistent, that are inconsistent with its published policies like this.

That is a concern and we’ll talk a little bit more about what half Canada might do about that and what other charities might do about that next slide.

And with that, we’ll pass over back over to Jessie, who can take us through how CAF Canada is going to be and how you might consider trying to apply these new rules in a way that will be beneficial.

Jessie Krafft
Great. Thank You Robert.

Clearly what Robert has just described is much different from the own activities rules. And there are a few key ways, although this is not all encompassing of all the differences between the two, but a few that that are most important for us are most meaningful for us are that the Grant making focus one on risk and accountability rather than controlling the charities own activities and and the due diligence process factors much more heavily in the new regulation which I think is really it’s really significant in the course of how you manage your work with Non-Qualified Donees with with foreign organizations.

Additionally, the grantee in this case retains a lot more autonomy over how they carry out their own programs. And while Robert did mention that it is still important that there’s a written agreement, it doesn’t have to be as restrictive in nature and as controlling as the own activities project agreement that’s in place. And it is definitely a best practice to have that Grant agreement in place. That’s still something that’s recommended by the CRA as well, but it can be really focused more on a partnership this Grand Tour grantee partnership than than this top down control approach.

This also means that the Grand Tour can fund existing activities that other donors might be supporting, so they can be part of a larger initiative rather than supporting solely its own circled out own activity. And the charity? The Grand Tour from Canada is not required to provide ongoing instruction, but I think as a best practice it would still be.

Jessie Krafft
It’s still important for the Grant for there to be communication, because there’s still an accountability requirement for the grantee to let the Grand Tour know if something is changing because they still need to make sure they’re in compliance with the Grant project and that that was written into the agreement and the other terms of that agreement. So it’s that ongoing communication is still important to maintain that accountability, but that but the direction and control is much more diminished in this case. However, there are a few things that still apply very strongly in both of these different regulations.

The first and foremost is that all of the funds must further the qualified donees charitable objects, and this is the case across any activity, whether it’s in Canada with qualified donees or outside of Canada is that the Canadian charity must adhere to what’s what. The CRA has approved their own charitable objects, meaning this is something for CAF Canada that’s important now and we’ll be important in the future as well.

As I mentioned, with the monitoring and reporting requirements, there are still reports that still need to be collected and that the funds need to be tracked separately so that they can report accurately. That’s another piece that’s important to include within the Grant agreement. That and within the process to on board a new grantee so that they’re aware from this from the start what the expectations and the needs are that need to be fulfilled by the Canadian charity in order to comply with the regulations.

It’s important to establish the separately tracked funds and the reporting requirements and everything from the beginning. You can really be a partner to that organization and not surprise them with those things in the future.

This is just a very useful chart that sort of summarizes the two, and shows all of the options for funding foreign charitable activities from Canada. One, we do still have the own activities role that is still in place and it’s still CAF Canada is currently using and again that can be funded through that can be applied through supporting projects, your own activities through staff and volunteers or through intermediate intermediaries in a contract agreement. And then second, we have this new qualifying disbursements rule where you can make gift to gifts to other qualified donees. Again, this is a Canadian charity making a gift to another Canadian charity or making grants to grantees that are non-qualified donees. This would include anyone outside of Canada.

Jessie Krafft
In this section I will just take you through some of what CAF America and CAF Canada have been undertaking international philanthropy for over 30 years.

CAF Canada is a subsidiary of CAF America and because of that we really have a proven and long term track record in cross border funding generally, whether it’s from the US regulations that the IRS has set forth or the Canadian regulations from the CRA.

But because we’re talking about funding Non-Qualified Donees outside of Canada, there are a number of things that you really need to consider in that process. Outside of just the regulations that we’ve been talking about, there are a lot of best practices in giving across borders.

As I mentioned previously, it was really interesting to see in the guidance and this new
regulation how much of that the CRA actually brought in in terms of due diligence and accountability, suggestions and recommendations for how to maintain that accountability and due diligence. It was interesting to see some of those best practices actually brought into this. Firstly, in order to maintain those accountability requirements and maintain the due diligence.

There’s really a lot of mechanisms that within the guidance the CRA is recommending in terms of taking a risk based approach and we were delighted to see that because it is how we manage all of our work outside of the United States and Canada currently. So what that really means is taking a look at what are the risks in working with this organization, whether that’s how long the organization has been in operation. Have they ever done a project like this before? What experience do they have in doing that type of work? What’s the size of the Grant? Are they in a high risk country? Do they have any issues in their financial standing or is there any negative media around the organization?

There we in our due diligence process, we look at a number of different things already within Canada and the US and we really take that, that due diligence and those outcomes and say well, what is our risk in working with this organization and how should we manage that risk.

And that can lead to things like as Robert mentioned earlier breaking the Grant into installments perhaps if it’s a very large Grant to perhaps a small organization. And managing the risk in that way or collecting additional reporting, reporting or things like that. But it’s really it. You really need to understand those risks through the due diligence process and then take appropriate steps to mitigate that. While it is sort of a new approach in the CRA guidance, it’s actually one we’ve been talking about for a long time.

We were, it was great for us to see that in the guidance and alongside that risk-based approach and the due diligence, there are also regulatory requirements around anti money laundering, anti terrorist financing. And sanctions compliance that we have to comply with.

Jessie Krafft
Also within that due diligence do background checks on the organizations and on their senior leadership and board to make sure we are not crossing any boundaries with these regulatory regimes that are outside of what we’ve been talking about in the CRA guidance, although they are mentioned within the guidance itself. That is another piece that factors into the risk based approach.

The other thing that’s really important here and I’ll I’ll expand on it in the next slide is that in cross border funding you you don’t only need to look at the regulations for getting money outside of Canada, but you also need to look at the local country regulations in terms of any controls they may have on their borders or on financial flows across borders, whether it’s just for charity or as part of normal practice to make sure that the your local partner is also in compliance with those local regulations. And that’s really important.

And actually in some cases, unfortunately there are charity organizations around the world that you just simply can’t work with because they don’t have those foreign funding registrations in place that they need in order to accept funds.

I’ll go into a little bit more detail on that, but it’s really important because you could be as a donor, you could be banned from that country if you’re not following the regulations or your partner could get in a lot of trouble.

And then finally, another best practice that we’ve always adhered to is collecting reports from the organization and this can take a risk based approach and can be modified based on the type of Grant that you’re supporting.

Under the context of the new regulation, but as we mentioned in the past, ‘own activities’ rules, there are quite a bit more detailed and stringent requirements on the reporting that’s required.

Jessie Krafft
I was talking a little bit about some of our best practices and what we’ve done, but and and Robert shared some of this as well, but this is these were items that were actually included in the guidance in terms of what the CRA is recommending for some of these due diligence measures and the the risk-based approach itself.

They suggested a few things to look for, including the Grand Tours experience and the work being funded. What is our expertise level in that work and do we know enough to? To verify the project that the organization is planning to work on the grantees experience, which is of course more important in this instance. If we’re making a grant to that organization looking at things like governance, structure, potential for private benefit, which would be impermissible of the amount of the grant, the nature and the type of resources involved, and how long that grant program is intended to last

These are all things that you could look at and understand what they are for each Grant that you’re considering could define the level of risk that you believe are taking. And then the subsequent actions from there. And then there are financial implications, anti money laundering and counter terrorist financing as well as reputational risks.

I mentioned that looking at negative media or public commentary about the organization that could flag a potential reputational risk. Those are all things that are good to look at, and this was included in the guidance that the (CRA) released as well.

Jessie Krafft
In the interest of time, I won’t go into this slide in a ton of detail just because I wanna make sure we leave some time for questions. But essentially, within the guidance of the CRA regulations. Dictate or give guidance on how qualified donees can advance their objects outside of Canada. But there’s a separate body of regulation that does govern cross border financial transactions. Generally, as I mentioned in the previous slide, so these are the guidelines that you have to ensure that you are following and that you have awareness of within Canada to make sure you’re not in violation of any of these particular regulations as well.

Really the way that we manage this, as I mentioned is doing background checks on that organization being very clear about sanctions that might be in place and the those sanctions are they change and so it’s something that you need to be on top of and aware of and on a consistent basis to make sure that there’s nothing changing, particularly if you’re working in a high risk country and that the the senior leadership and the board and you have we have we we subscribe to certain systems that enable us to do background.

Jessie Krafft
Checks on senior staff and board membership so that we can keep on top of these things. It is perhaps one of the most challenging pieces of the due diligence process. If you don’t subscribe to a system, so we really benefit from having that in our back pocket so that we can beat feel more certain that we know the entities that we’re giving to and that are related to that, that organization that we’re giving to. So we have to look at both (CRA) and FINTRAC regulations. That’s very important to keep in mind.

Just to dive a little bit more into the inflow restrictions that I mentioned earlier, because I think this is a really important point that not many are aware of, particularly if they’re just starting to give across borders. But there are a number of different types of what? What we have termed inflow restrictions, therefore the restrictions that are present upon giving into certain countries.

We’ve just given some examples here of the different types of restrictions that we generally see in some countries where that restriction applies. And I’d say that perhaps the most important one to pay attention to and the one we’re seeing the most is the requirement to obtain prior approval before foreign funding is received into that country. So in some of these cases, that is an approval per Grant.

In China, for example, there’s something called a temporary activity license that the organization has to file for in partnership with the donor in order to receive approval from the Chinese Government to receive a foreign charitable contribution. This process is it, it takes a long time. It can take anywhere from a month to five months, and it really depends on different circumstances that are outside of our control. It depends on the government, so you really need to keep on top of this and have certain documents ready and hand in place if you’re working in China as an example, to make sure that you can make sure you’re not sending funds into the country illegally.

And then there are other countries such as India, where the organization itself has to apply for a blanket approval. It’s alongside their charity registration. It’s called the foreign. It’s called F (CRA). The foreign Contributions Regulations Act, where essentially they have to be registered under this act in order to receive any foreign donations, and then they have to renew it every few years. Fortunately it’s not per project, but it is getting. It’s becoming a much stricter process with its own challenges. Again, something you need to look out for, you cannot give to an organization that does not have this registration.

And actually the list goes on and on. These are just four examples, but there are a number of countries that have these in place, each with different processes and requirements. This is something we actually spent a lot of time keeping up with and managing for all of our grant making around the world. The other top the other categories that we see frequently are stigmatization, which really is you could be labeled a foreign agent, which is essentially a spy in certain countries. If you receive funds from a foreign source, in some cases we have had grantees reject funding from us because they don’t want to, they don’t want to take on the risk, especially if it’s a small grant. It’s just not or a small distribution if we’re under the own activities rule. I’m using the word Grant and project distributions here, but I’m talking sort of about both.

You just need to be aware of that and communicate with those partners so that you can make sure they have what they need or that they are willing and able to accept the funds that you would like to send to them. And then there are other things such as limitation on certain types of activities. There are a lot of human rights focused activities that are challenged in certain countries. For example. Certain countries have controls over the resources.

In some countries they have to go through government banks if they’re coming from a foreign source and then that charity has reporting and accountability to the bank as well as to document how those funds will be used. And in some cases there are additional taxes to be aware of that might play a part in, how they’re spending some of those grant funds if they are, if they’re utilizing them for certain purposes. Within that country that are taxable and this map is I just wanna note that the source is CIVICUS. They have an excellent if you, if you’re not aware of CIVICUS, it’s an excellent resource to understand some of these. The civil society restrictions globally, whether it pertains to funding sources or not, they’re just an excellent resource that is always tracking these regulations. Highly recommend you check that out if you don’t, don’t know of them already.

Jessie Krafft
And just to round this out before we jump to Q&A, I’m actually going to push this back to Robert to talk about some of the implications on the sector generally and what he’s seeing since these guidelines have been released.

Robert Hayhoe
Thanks. Jessie, so you know, and I are a little bit divided on this issue.

I think most Canadian charities that have looked at these and most Canadian advisors that are trying to help their clients implement these think that these qualifying disbursement rules are going to be useful in various contexts, but that they’re not a silver bullet that will allow. Unaccountable gifts outside of Canada or to Non-Qualified Donees in Canada.

There was another proposal for changes to this that came out of the Senate of Canada and what we ended up with was really the Federal Ministry of Finance attempting to preempt that Senate proposal and to not allow it to go as far as they wanted to.

I think my view is that these are beneficial changes. They’re going to be useful, but they’re not as useful as they might have been. They’re still more restrictive than the comparable US and English rules, but they’re better than what we had. The CRA has given, as I’ve said before, pretty good guidance on this. It’s pretty comprehensible. It should be easy enough to work with, but there are still unanswered questions. Exactly how far does the anti directed Giving rule bro? How is it going to apply to organizations like CAF? What exactly does a risk management process or approach look like?

The CRA divides things into high, low and medium risk and has various factors. What do you do if you have on a particular Grant 3 high risk factors 2 low risk factors and one medium risk factor? Do you sort of average that out and call it medium risk or are there some factors that are always going to overwhelm the others and make things higher risk that’s going to need to be figured out and we don’t know that yet. And what does that mean in practice?

It means that there has been less take up of these new rules than perhaps I expected, and I think that the CRA expected. It also means that in some kinds of context, like donor advised funds, we’re advising our clients to get some specific preclearance from (CRA). Not everybody and not in all circumstances, but in some circumstances where there is clear donor preference being expressed, we’re recommending that our clients get pre-clearance from (CRA) on the approach that that particular charity is going to take. It’ll be interesting to see how it plays out.

The other thing that’s happening, of course, is for the foundation world, the private foundation world in particular.

Lots of charities are having to do object changes before they can start to do qualifying disbursements at all, because they have Grant to register charity objects so that I think has limited the uptake as well in the foundation side of the world.

But that’s really my quick view on how this has played out thus far and is likely to play out now back over to you, Jessie, to talk about what it means for CAF and then take us into questions.

Jessie Krafft
Thank you. As Robert mentioned, there are still a lot of unanswered questions and I think for CAF Canada in particular, the anti directed Giving rule is perhaps the biggest one, although there are other things to consider as well that aren’t entirely clear within the guidance.

But upon reading the regulations, the the thing that is useful to us is that it is actually quite similar to the donor advised Giving approach in in the United States, where there are very specific discretion and control rules in terms of charities that receive funds with advice from a donor and how to manage that and how to demonstrate and and and actually in actuality still maintain control and discretion over the use of those funds, it’s actually of utmost importance in the US if you’re working through a DAF that you have that direction and control, and have the ability to say no and you’re not returning the funds if you can’t make that Grant. That was advised. There are really specific regulations around that.

From the CAF America perspective, we have a lot of expertise in that. However, it is still a question mark, and perhaps one of the most important ones for us in this guidance. As Robert mentioned, we are seeking further guidance from the CRA before officially deploying these regulations. For now, nothing is currently changing in the way that we’ve been managing our work within our own activities work approach with Non-Qualified Donees from Canada and are in the 10 years that we’ve been doing this work.

The process will remain the same for now, but we are working on next steps and hopefully can seek to deploy these new regulations in the future. But that’s where we currently stand on that. With that, I would love to turn it over to Q&A.

Jessie Krafft
I’m just gonna pop over to the box and there are several. As I mentioned, there are several questions that came in through the registration, I’m going to focus on those first and then sort through the rest. But. And Robert, there are a few that I might punt over to you as well. And I think that I might punt this first one which is assuming a charity takes all reasonable due diligence steps mandated by the act.

What liability is the charity exposed to if the donee engages in non sanctioned activities?

Essentially, Robert, have you seen or has there been any specific discussion aside from a revocation of your charitable registration in Canada? If the grantee themselves and what does not follow the agreement that’s in place or the guidelines, what liability is there for the charity, if they’ve followed everything that the CRA is recommending?

Robert Hayhoe
Thanks. Under the old own activities approach, there are actually examples of charities having compliance action taken against them. Canadian charities having compliance action taken against them in that kind of a situation. Usually in a situation when there are other issues at stake as well, but still under these new qualifying disbursement rules, provided that there is monitoring the policy and that the monitoring shows up, the malfeasance on the part of the grantee, and that the Grant is cut off. Once that comes to light, provided that all of that happens, the policy would suggest that there ought not to be the violence action taken by the CRA against the charity. Everything is context dependent in these kinds of compliance situations, so I wouldn’t want to promise that. But I think we’re in a safer spot than we were under the old rules.

Jessie Krafft
Excellent. Thank you so much.

And the second question from registration is, can you share more about the due diligence process and risk assessment that is needed for larger grants?

We may have answered this a little bit throughout the presentation, but as mentioned there are because the CRA has recommended a risk-based approach, there is more due diligence that you should do and mitigation factors that you should consider in terms of what, when you’re funding. Larger grants. In our approach for example, what we do in this in our specific risk-based approach is for a larger Grant, we would probably do a deeper dive into the financials of that organization and better understand their ability to manage that kind of funding.

In some cases, we’re working with organizations, smaller organizations that are all of a sudden being given a larger grant, and in those cases we’d likely manage that through installments and things like that.

And then there are other due diligence measures that we would take. And actually within the guidance, there are some recommendations from the CRA in terms of managing those accountability measures depending on the risk. But you know, it is really varied based on the recommendations of the CRA. You really need to look into that and develop your own approach as a donor as well. But I’m happy to answer more about that offline as well if there are still other questions.

Jessie Krafft
Another question from the registration.

How do you think the new (CRA) guidance will change relationships between intermediaries and the international organizations to which they are sending funds?

We also talked about this a little bit through the presentation really within the prior own activities rules. There was really a top down direction and control requirement for those. And it and it really didn’t leave a lot of room for flexibility in that relationship and how it was managed between the intermediary and the donor qualified donee entity.

There will be more flexibility and more of a partnership approach enabled under the new qualified disbursement rule.

Jessie Krafft
Another question from registration.

What can international nonprofits do to make sure they operate within the constraints of the news (CRA) guidance?

I think first and foremost, it’s really important as an international profit nonprofit, to make sure you understand the the regulation well from from a high level, the regulation that the, the, the qualified donees your donor is using in this instance and and they should really be the ones to direct and guide the process. Because as I mentioned previously, CAF Canada’s not currently relying on the new regulation. We’re still using our own activities rules and our process will still come from that place. We’ll be supporting you through that process to be clear on what you need to do to ensure your operating within those constraints or within those regulations. We’ll work closely with you as the donor.

I can’t speak for other qualified donees that might be donating to you, but I would say first and foremost, don’t try to anticipate what they’re doing because they might not be relying on this new regulation quite yet. Just you should work with them closely to understand those requirements.

Jessie Krafft
Another question is overall, is the new (CRA) guidance more restrictive or more permissive with respect to Canadians who want to donate to charities outside of Canadian borders?

I think Robert answered this question well, sort of in the wrap up to the session. It is less restrictive and it is more permissive. However, it’s not as permissive as some of the regulations in the US and the UK, for example, but it is absolutely an advance in the right direction and is something that we can support in terms of enabling more of a trust based philanthropy approach. More of a, you know, grantor grantee partnership instead of a top down control relationship. It is less restrictive, but there are still some really clear guidelines and requirements that must be followed.

Jessie Krafft
Does the final guidance change change anything about the current policy for REGRANTING to other organizations after funds have been received?

Would organizations receiving regranted funds need to be individually vetted and approved?

This is not something and Robert I may punt this one to you in terms of (CRA)’s view on regranting within the context of these new this new guidance, it’s not specifically mentioned anywhere in the new guidance from my read of it.

I think from from the standpoint of how we typically manage regranting, we would still, if we were utilizing these these guidelines ask a lot of questions and perhaps have a specific list of of due diligence items that we would require from you if you were regranting to another organization because we still need to have oversight, we still need to have accountability to the use of those funds.

We have to make sure that proper accounting measures and reporting is in place as well to make sure that we are being good stewards of those funds if they are regranted to another entity. Rather, I don’t know if you’d have any other things after that.

Robert Hayhoe
Yeah, I think it’s going to depend on where things where the regranted fit the subgrants were called fit into the CRA’s risk matrix.

If we have a sophisticated first level grantee in another country and they receive funds subject to an expectation that they’re going to make, let’s say a large number of very small grants, that would be, that would all fit within the CRA’s will risk category in that kind of a situation, it wouldn’t be necessary, I don’t think to have very much oversight over each of the individual over any individual small Grant.

But the oversight would be at the global level on the first grant, on the other hand, if the first grant was to a very high risk recipient and the SUBGRANTS were also things that would fit if they were looked at individually into the high risk category, then there will be, you know, an obligation to have high risk kind of oversight at both levels.

Jessie Krafft
Yeah, that’s a great point. The next question is given the own activities role, can these grants only be made from qualified donees that are registered as operating charities versus funding.

A private or funding. A foundation charity, for example. Or with the example being foundations that hold donor advised funds, I’m not quite sure I understand the angle of this question.

Robert Hayhoe
Do you want me to take a crack at that?

Jessie Krafft
Yes, please go for it.

Robert Hayhoe
I think there are two I I wasn’t sure which way it was looking at either, so if you’re looking at it from the perspective of can a Canadian foundation make qualifying disbursements?

The answer is yes, but it needs to have active charitable objects and what’s done. That’s going to be a hindrance if you’re looking at it the other way: can a Canadian charity with appropriate objects make a Grant to a foreign foundation of capital?

Can Canadian charity sort of transfer and endowment to a foreign charity where the foreign charity will then sit on the endowment and dribble the funds out and the way that endowments typically do? I don’t think that that’s possible. I don’t think that that’s what (CRA) intends. I’m not sure that everyone agrees with me on that.

I’ve heard a suggestion to the contrary from another lawyer, but I don’t think that that sort of endowment transfer Grant is consistent with these rules.

Jessie Krafft
Great. Thank you, Robert. Now I’m getting into questions live from the audience and we just have a minute left, so I’ll try to get through these.

Jessie Krafft
This is a question on a very specific case where the local emergency committee of a coastal tsunami ready community is applying for a Community Association on disaster mitigation.

Would the CRA and CAF be able to approve and provide letters of intent even before the project is approved by the local government authority?

I think that’s basically what the ASK is and the answer is yes. We do it in terms of those cross border and local requirements. We do provide letters of intent all the time and what and and that can even happen before the government has approved. Sometimes that’s necessary for the government to approve.

We do that all the time, but what we would need in place first is we would need to conduct the due diligence on the organization and have that process complete before we provide that letter of intent. And within that letter of intent, it’s really clear that we’re not making any sort of promise to support the funding and that additional requirements and board approval and things like that are needed on our side before we can distribute the funds so that we make that clear in the letter, but we do have a template for these letters of intent that we use all the time. Yes, we can certainly provide that before that project is officially approved.

And with that, we are past the hour. I just want to say thank you to everyone for being engaged. Those were a lot of great questions and thank you for attending today. If you have any questions at all or we didn’t answer something that you wanted, please feel free to reach out to us at info@cafcanada.ca and yeah, we would love to hear from you. Thanks so much for coming today. Have a good day.