Directed Gifts – What does 'imply' actually imply?

By Adam Aptowitzer

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When the Federal government proposed and then later passed the “directed gifts provisions” in June 2022, their stated intention was to prevent Canadian charities from acting as conduits to raise money in Canada on behalf of foreign entities[1]. This was related to the new method allowed to charities to grant money to those groups. Acting as a conduit has been a recurrent concern but was previously handled by requiring Canadian charities to maintain control and direction over their funds spent abroad. While that method left much to be desired, in comparison with the restrictions imposed by the directed gifts rules they were clear and unambiguous.

This directed gift provision states that a charity which accepts a gift with an explicit or implicit direction that the gift be granted to a non-qualified donee is subject to losing its charitable status. We were hoping that the CRA’s published interpretation on the point (available here) would provide firm guidance as to its meaning, but in fairness to the CRA – how can anyone understand the full implications of this provision.

The CRA's position on this point, states that an implicit direction includes the situation where it is known that if the charity were to grant money it is known in advance to whom it would grant it. This principle is explained in the context of the charity’s formal documents (i.e., name or purposes) which indicate a relationship to a specific non-qualified donee (e.g. foreign charity). But there are other ways a charity might state in advance that it plans to give funds to a specific grantee abroad. Read broadly it would appear that these operational standards would also fall into the CRA’s understanding of ‘implicit’ direction.

Running a charity involves planning, that includes deciding in advance – sometimes several years in advance – to raise money for a particular cause. Let’s say that a charity decides to support a particular program abroad which requires the Canadian charity to make a grant to that foreign group. How can the charity go to the public suggesting that it is raising money for this foreign project without implying that if it grants the money, it will be sent to this project? There is no formal relationship with the grantee, just a decision – taken in advance – that the grantee runs a program worthy of support. It would seem that any donation made to the charity with the intention of supporting this program would potentially be caught.

Another, more worrisome, situation is where a Canadian charity simply budgets a certain amount to support a foreign program. If a Canadian charity were to decide that 5% of its budget were going to be given by way of grant to a specific foreign non-qualified donee then every donor would know that, in principle, five cents on the dollar were would be granted to this foreign entity. Applying the CRA’s logic then this is also an implicit direction because the donor knows in advance that if the charity is going to make a grant it will be to the predetermined recipient.

Much of this is a consequence of budget restriction on acting as a 'conduit', but it would be in everyone's best interests to better define what is meant by this word. We hope that the CRA will provide some additional explanation here. Fundamentally though this article highlights the ambiguity and difficulty in complying with these provisions. Under the circumstances the CRA is likely struggling as much as the rest of us to truly understand the meaning of these new provisions, but it seems that we will need to see what the Courts say in order to truly understand an ‘implicit’ direction.

Opinions presented are those of Adam Aptowitzer

[1] You can see the article we wrote about the proposals at the time here.