Policy statement

Reference number
CPS-026

Effective date
May 1, 2008

Purpose

This policy statement outlines the Charities Directorate's policy on registering organizations that support the charitable sector by promoting the efficiency and/or effectiveness of registered charities, or that advance a charitable purpose by working with and through member groups. In this document, these organizations are described under the general term: umbrella organizations. Registered charities that hold title to property on behalf of other registered charities are also outlined in this policy, given their similarities as "enabling" organizations.

Summary

Overview

Subsection 149.1(1) of the Income Tax Act (the "Act") sets out the basic framework for the registration of an organization as a charity. The part of this subsection that is most relevant to this policy is found within the definition of charitable organization:

…"charitable organization" means an organization, whether or not incorporated, (a) all of the resources of which are devoted to charitable activities carried on by the organization itself…(emphasis added)

This portion of the Act sets out a two-part test. To qualify for registration, an organization must demonstrate that its activities are: (1) charitable in the sense understood by the law, and (2) carried on by the organization itself.^{ootnote 1}

It is the Directorate's position that an organization does not have to work directly with individual charitable beneficiaries in order to be considered to be advancing a charitable purpose. Within the boundaries described by this policy, the Directorate accepts that umbrella organizations can advance a charitable purpose by directing their activities at improving and enhancing the charitable activities of other generally community-level organizations. In fact, the establishment of a coordinating body is often necessary and integral to the success of a program on a larger scale. The work of such organizations is charitable in so far as it contributes to an improvement in the quality of service to the public, as well as increasing the level of service available to the public.

However, while this policy contemplates arrangements under which a registered charity may work with and through non-charitable entities, the existing restrictions, as defined by the Act and common law, still apply.

While the gifting of resources to non-qualified donees is generally prohibited, charities can carry on their own activities through an intermediary if the charity exercises direction and control. Also, Budget 2022 amended the Income Tax Act to permit registered charities to make qualifying disbursements by way of grants to non-qualified donees. In these arrangements, charities are still precluded from conferring undue benefits, or more than incidental private benefits on organizations that are not qualified donees.^{Footnote 2}

Replacement

The Directorate's Policy Statement CPS-008, Organizations Established to Assist Other Charities dated January 12, 1996, is withdrawn and replaced by this policy. The Directorate's Policy Statement CPS-009, Holding of Property for Charities is withdrawn and replaced by this policy.

Definitions

i) What is an "umbrella organization"?

The term "umbrella organization" is often used interchangeably with the terms "facilitator organization," "parent organization," or "intermediary organization." A charitable umbrella organization is one that works to achieve a charitable goal by supporting, improving, and enhancing the work of groups involved in the delivery of charitable programs. In this relationship, work with individual charitable beneficiaries is usually the role of local level groups.

It is important to note that, for the purposes of this policy, where the preponderance of the work done by an entity is intended to benefit or complement a single organization's work, the entity is not considered an umbrella organization,^{Footnote 3} although these may still qualify for registration. However, an organization that is created merely to enable another organization to circumvent restrictions on the use of charitable resources, for example, to carry on all fundraising or other non-charitable activities on behalf of another charity, would not qualify for registration.

ii) Beneficiaries versus members

An organization's eligibility for charitable registration is determined by reference to its beneficiaries rather than its constituent members. These two categories frequently overlap, but are not necessarily the same.

In the context of this policy, "beneficiary" refers to those individuals or organizations that the umbrella organization's charitable programs are designed to ultimately benefit.

A "member" refers to an individual or organization that, generally through a formal process of recognition, is given a defined right to participate in an umbrella organization's sphere of activity. Membership may take many forms (for example, membership, affiliation, association) and eligibility for inclusion is often based on geography, similarity in mandates, and/or other common interests.

iii) Distinction between organizations described in Section A and Section B

It is the long-standing position of the Charities Directorate that an organization that devotes its resources to improving the efficiency and/or effectiveness of the activities of other registered charities is itself charitable. This is so precisely because, as the Act and common law require registered charities to be exclusively charitable, improving the efficiency and/or effectiveness of such groups can only result in an increase to the overall level and quality of charitable activity. It is also in keeping with the general framework of the Act, which allows registered charities to transfer money and other resources to registered charities and qualified donees.

Section A describes umbrella organizations that restrict their beneficiaries to other registered charities.^{Footnote 4} As outlined above, an umbrella organization that targets its activities at improving the services of other registered charities, can focus on improving most aspects of the beneficiary groups (for example, direct delivery of charitable programs, planning fundraising campaigns, human resources) subject to the procedures below.

By contrast, Section B contemplates umbrella organizations that work through a network of registered charities and non-registered entities to achieve a recognized charitable purpose. Because these non-registered entities may carry on a mix of charitable and non-charitable activities, it cannot be assumed that improving their general effectiveness and efficiency would necessarily lead to an increase or improvement in charitable activity. Furthermore, registered charities are prohibited from using their resources for the private benefit of organizations that are not qualified donees.

As a result, umbrella organizations that work with both registered charities and non-charitable entities must restrict their work with non-charitable entities, to the provision of services that are narrowly focused on increasing, enhancing, or improving the non-charitable entities services to charitable beneficiaries (that is, the public). Such umbrella organizations must also ensure that their activities confer no more than an incidental benefit on non-charitable entities.

The following example illustrates the difference. An umbrella organization, established to increase the capacity of organizations involved with youth homelessness, might carry on the following activities:

(1) providing training to counselors on addressing drug addiction associated with homeless youth

(2) providing guidance on structuring programs to be more appealing, relevant, and responsive to the particular needs of homeless youth

(3) training on how to write successful grant applications and secure funding

(4) providing expertise and guidance on operating a successful fundraising campaign

In this example, all of the activities would be acceptable for an umbrella organization described in Section A, above. Because all of the beneficiaries of the services are exclusively charitable, the training and guidance will result in an increase in the operational capacity of the member groups. These benefits will necessarily result in an increase in the quality and/or quantum of charitable activities carried out.

An umbrella organization described in Section B that works with a mix of charitable and non-charitable entities could carry on the activities numbered 1 and 2, above. In our view, these could only result in an improvement in the quality of services available to the homeless youth and, as such, would be charitable. However, activity number 3 and 4 would not be acceptable activities. Increasing the general organizational capacity of a non-charitable entity would not necessarily result in the application of additional resources to the advancement of the charitable purpose. It would also be contrary to the requirements of the Act.

Policy guidelines

A) Charities established to assist other registered charities

"Promoting the efficiency and effectiveness of other registered charities" is a valid charitable purpose. The Charities Directorate's position is that providing a service or assistance that directly improves the charitable programs of other registered charities, that improves the efficient administration of other charities, or that enables charities to realize economies of scale that they could not achieve on their own, is charitable.

The Directorate generally views this as charitable because:

a) activities that improve the efficiency of charities (for example, by reducing the amount of overall charitable property contributed to operational costs and administration) increase the amount of resources dedicated directly to charitable programs

b) activities that improve the effectiveness of charities (for example, by providing assistance and expertise) increase the capacity of charities to deliver programs and serve individual beneficiaries

i) Beneficiaries

Per the charitable purpose, the beneficiaries of the services of an umbrella organization in this category are registered charities. As such, to qualify for registration, the organization must demonstrate that at least 90 percent of the beneficiaries of its services are registered charities.

The Directorate is prepared to accept that an umbrella organization may provide incidental support to organizations that are not registered charities (up to a maximum of 10 percent numerically and in terms of devoted resources) provided this support is limited to non-profit groups with purposes focused on providing a benefit to the community-at-large.^{Footnote 5}

ii) Formal purpose

To be eligible for registration within this section, the formal purpose of the umbrella organization should be worded in such a manner that it is clear the object of the organization is to improve the efficiency and/or effectiveness of other registered charities.

However, the mere statement "to improve the efficiency and effectiveness of other registered charities" is not sufficient because it is overly broad. For example, under this wording an organization could purport to improve the efficiency of registered charities by only referring employees trained by a particular training company to registered charities. This, of course, would not be acceptable because it would confer an inappropriate private benefit on the training company.

In addition, an umbrella organization must be established and operated exclusively for charitable purposes, and all the charity’s resources must be devoted to charitable activities carried on by the charity itself. Charitable activities include public policy dialogue and development activities (PPDDA) that further a charitable purpose. PPDDAs generally involve seeking to influence the laws, policies, or decision of a government, whether in Canada or a foreign country.

As long as a charity’s PPDDAs are carried on in furtherance of its stated charitable purposes, the Income Tax Act places no limits on the amount of PPDDAs a charity can engage in. In this context, a charity may devote up to 100% of its total resources to PPDDAs that further its stated charitable purpose. For more information, see Guidance CG-027, Public policy dialogue and development activities by charities.

Umbrella organizations must indicate precisely the means by which they intend to improve the effectiveness and/or efficiency of other registered charities. For example, acceptable wording might be:

• to improve the efficiency of other registered charities by providing a facility, at below-market rates, to house the operations of other registered charities
• to improve the effectiveness of other registered charities by providing expertise on planning, structuring, and improving charitable programs to better address the needs of beneficiaries
• to improve the capacity of other registered charities by providing consulting and training on operational and management issues such as holding effective meetings, attracting and retaining volunteers, and designing successful programs

iii) Activities

To qualify for registration, applicants must describe their activities in full detail (that is, the programs undertaken to fulfill their purpose). This description must be more than a simple restatement of the charity's formal purposes. In addition, the applicant must demonstrate to the CRA's satisfaction that:

a) the activity is a logical and reasonable means of accomplishing the stated purpose

b) the activity is reasonably likely to result in an improvement of the efficiency and/or effectiveness of the entities served. In other words, the applicant has to demonstrate how the program/activity will improve the operations of the beneficiary charities

iv) Types of activities

An umbrella organization established to improve the effectiveness and efficiency of other registered charities may accomplish this purpose through a broad range of activities.

The following is a non-exhaustive list of activities that an applicant may engage in to further this purpose. We would note that these examples are brief descriptions and, in an application, the Directorate would generally require greater detail than is set out below:^{ootnote 6}

• providing a facility at no-cost or at reduced-cost to house the activities of registered charities
• providing specialized administrative services such as a website to collect secure on-line donations, providing specialized information technology, legal or accounting services, negotiating and administering lower group insurance rates,^{Footnote 7} or providing low-cost fundraising
• providing training on a variety of topics for managers, staff, and volunteers
• providing professional consulting services to charities on topics including planning a successful fundraising campaign, organizational governance and re-structuring, volunteer recruiting, or risk-management
• purchasing goods and services on behalf of a group of registered charities
• generating, collecting, and disseminating data of interest and of use to registered charities
• holding title to property on behalf of registered charities (See Section C)

As outlined above, such activities would be charitable if it is reasonably likely that they will result in an improvement to the effectiveness and/or efficiency of the organizations served.

v) Treatment of expenses

An umbrella organization providing services would ordinarily report the direct costs of providing these services as charitable expenditures on its T3010 Information Return. It will, of course, have its own administrative and fundraising expenditures that it is required to allocate separately on its T3010.

Generally speaking, when a beneficiary charity makes a payment to an umbrella organization for services, it is expected to categorize these payments accordingly on its own T3010. For example, where one charity pays another for accounting services, the paying charity would report this as an administrative expense. It is, strictly speaking, not a gift to the recipient charity.

B) Umbrella organizations advancing a recognized charitable purpose

In contrast to the preceding section, many umbrella organizations are established to further a particular charitable purpose (other than assisting charities), and in this regard may convey benefits on constituent groups as incidental to the achievement of that purpose. The charitable purpose being advanced is usually related to a specific issue, such as a particular subject of education (history/archeology/geography) or particular issue of health (fitness/disease prevention/therapy) that all member organizations share a common interest in.

These umbrella organizations are often hierarchically organized, consisting of a national or geographically defined body with provincial and/or local members. Membership is sometimes comprised primarily of registered charities, but may also contain non-registered entities that, for a variety of reasons, may not seek registration.

As noted in the Overview, it is the Directorate's position that an umbrella organization does not have to directly serve individual charitable beneficiaries in order to advance a charitable purpose. Many umbrella organizations conduct programs that may increase the ability and capacity of member organizations, but are specifically designed to directly increase, enhance, or improve services to charitable beneficiaries. The following section outlines the Directorate's requirements in this regard.

i) Beneficiaries

To qualify, the beneficiaries of this type of umbrella organization must be the public-at-large, or a sufficient segment thereof. As such, to qualify, the purpose and activities of the umbrella organizations must be clearly and specifically focused on providing a direct benefit to the public and not to members.

Umbrella organizations within this section may have member groups that are a mixture of registered charities and non-registered entities (for example, non-profit bodies), as the ultimate target beneficiary of the charitable service is the public. However, the umbrella organization must be cautious that its focus is not, in fact, primarily or exclusively to benefit its members. Where an organization is established primarily for the benefit of its members (that is, its members and its beneficiaries are the same) whether those members are predominantly charities or objects of charity is a key consideration in determining eligibility for registration.

ii) Formal purposes

The purposes of an umbrella organization seeking registration under this section must always be expressed in relation to the charitable category the organization is established to advance.

For example, the following would be considered acceptable purposes:

• To advance the knowledge of, and study of, Canadian history by organizing an annual conference on topics of relevance to Canadian historical societies and the public
• To improve the quality of service and treatment to individuals suffering from Tourette's syndrome by distributing information regarding research projects, educational conferences, and patient resources to health organizations within Ontario

An umbrella organization seeking registration under this section must not be established for purposes such as "to provide support to member groups" or "to co-ordinate the activities of member groups." It is not, as a purpose, acceptable for umbrella organizations to simply provide generalized assistance (for example, office support) to its constituent groups unless they are substantially all registered charities.

iii) Activities

To qualify for registration, an umbrella organization must show that its activities, which may incidentally complement or supplement the work of its constituent groups, achieve or advance a charitable purpose. Implicit in this is the requirement that the applicant provide more than general support to constituent groups in the hope that service delivery improves. An umbrella organization must show that its activities are directly connected to furthering the delivery of charitable services to meet the legislative requirements that it carry on its own charitable activities, or makes grants for activities that further its own charitable purposes.

In determining whether a particular activity is acceptable, the Directorate must consider the following:

• What is the charitable purpose the organization is established for?
• Can the proposed activity of the umbrella organization be reasonably said to achieve/advance this purpose?
• Is the activity designed to provide a benefit to the public or a sufficient segment thereof?

An activity can be said to achieve or advance a charitable purpose when the activity can reasonably be shown to result in an increase in the quantity, quality, or availability of a charitable service to the public.

For example, an umbrella organization promoting health might do so by collecting and distributing information in a newsletter about new research, innovative projects within a particular community, or about the availability of new patient services. This activity can reasonably be said to advance the charitable purpose as (1) health care providing organizations receive current research news relevant to treating patients; (2) successful community care models are shared as widely as possible and may be duplicated in other communities; and (3) information regarding new services is passed to individual beneficiaries.

If an activity meets the above criteria, the CRA officer must also assess the degree of private benefit being conferred on non-charitable beneficiaries. The officer must determine:

• Is a private benefit being conferred on a non-charitable entity?
• If so, is that benefit incidental to the achievement of the charitable purpose?

As noted in the Overview, the Act prohibits registered charities from gifting funds or making resources available to entities that are not qualified donees, unless it meets the qualifying disbursement requirements. In these arrangements, it is also generally inappropriate for a registered charity to make its resources available for the benefit of non-qualified donees. However, the Directorate will not disqualify an organization from registration when the private benefit provided is incidental to the achievement of the charitable purpose.

Conferring a private benefit is the use of charitable resources for an individual or entity's own advantage rather than a broader public advantage. To determine if a private benefit is truly incidental may require an exercise of judgment on the part of the examining CRA officer. The following non-exhaustive guidelines may be used for determining whether a benefit is incidental:

• a benefit may be incidental where the actual monetary value and cost of the benefit is negligible (for example, inclusion of an organization on a newsletter mailing list)
• a benefit may be incidental when the value of the benefit provided is equivalent to or below the market-value of services the charity would otherwise be required to spend in substitution:
  • for example, a charity established for the relief of poverty rents housing to a non-profit organization at virtually no-cost under a strict agreement that the latter sublets to low-income families. The non-profit organization provides property management services, and derives no more remuneration from rental income than they would from a contract for management services. Here the onus is on the applicant to provide definite financial evidence that the benefit is essentially of neutral character
• a benefit may be incidental when the value of what is provided to the direct achievement of the charitable purpose vastly outweighs the private benefit being conferred (which may be more than negligible):
  • for example, a health-related charity that provides specialized equipment at no cost, or below cost, to homes for the disabled, or an educational charity that distributes free educational tools to a variety of charities and non-registered educational institutions^{Footnote 8}

However, it is not sufficient for a registered charity to simply transfer charitable goods to a non-qualified donee in the hope or assumption that they will be used in charitable programs. Even where the nature of the property limits how it can be used, the charity should be able to show that the property was and/or continues to be used in charitable programs and was not subsequently sold, stored, or disposed of by the non-qualified donee. Particularly when the value of the property is substantial, the charity should have an agreement about the ongoing use of the property and should conduct follow-up monitoring activities to ensure the property was used as intended. For more information, see Guidance CG-032, Registered charities making grants to non-qualified donees.

The above examples illustrate that, to qualify, charities must be extremely cautious when conferring benefits on organizations that are not registered charities. If the CRA determines that a benefit being conferred is more than incidental (that is, the conferring of the benefit goes beyond what is necessary or reasonable to the achievement of the charitable purpose):

• if the organization is an applicant for registration, it will not qualify
• if the organization is an already-registered charity, it could be subject to a monetary penalty and/or have its registered status revoked

iv) Types of activities

An umbrella organization's activities may tend to focus on issues on a broader scale than those of their "grass-roots" membership. However, the umbrella organization's programs must always be directed toward achieving a charitable purpose and improve, increase, or enhance services to charitable beneficiaries.

The following are examples of acceptable types of activities for umbrella organizations:

• coordinating services between member organizations to ensure services are delivered to the maximum number of beneficiaries
• identifying the unmet needs of charitable beneficiaries and undertaking and coordinating projects to address these needs (for example, receiving and responding to requests from beneficiaries for new types of services)
• establishing and maintaining national standards and guidelines for program delivery to ensure better service to beneficiaries
• holding conferences and seminars on topics related to the charitable purpose(s) to be achieved
• providing educational courses, workshops, and training relating to service delivery for staff of its constituent groups
• conducting and publicizing research, or collecting and distributing the research of member groups (for example, through journals and newsletters)
• providing advice, guidelines, and assistance to the public and voluntary sector groups on the establishment and operation of new charities and public benefit organizations
• providing information to the government, press, and public on the sector and issues relating to its charitable purpose
• organizing and coordinating national campaigns to encourage public involvement in, and support of, the relevant charitable purpose (for example, fitness campaigns and literacy campaigns)

Many of these activities, although furthering a particular charitable purpose, might also qualify as charitable in and of themselves (for example, research as promotion of education). As before, in an application, further detail would generally be required.

v) Treatment of expenses

Umbrella organizations in this section may have a significant amount of expenses, which seem administrative (for example, office support, supplies, printing costs). However, in classifying an expense as charitable versus administrative, it is necessary to conduct an analysis similar to that found in Section B(iii) above. In other words, what is the charitable purpose the organization is established for, and does the activity achieve this purpose? If yes, then the expense associated with the activity should be classified as a charitable expense on the T3010.

The transfer of funds between charities in this type of structure may or may not involve gifts. A charity that is making a payment to another charity in return for services is not making a gift to that charity. As a result, the relevant amount should be recorded according to the purpose for which it was made, and not as a gift to a qualified donee.

C) Charities established to hold title to property

Registered charities are increasingly creating separate title-holding entities for a variety of legal, financial, and operational reasons. An organization established to hold title to property on behalf of other registered charities, while not an umbrella organization per se, may nonetheless be registered as an organization established to assist other registered charities.

For greater certainty, a distinction is drawn here between a landlord organization that owns a facility, which it leases, rents, or allows the use of by other, generally unrelated registered charities, and one that acts as a holding company for property beneficially owned by another related registered charity. The former situation is not addressed here and should be assessed using the guidelines set out in Section A.

i) Beneficiaries

Registration of the title-holding entity depends on the tenant entity being a registered charity or other qualified donee. A title-holding entity may not hold property on behalf of or beneficially owned by non-qualified donees.

ii) Formal purposes

Simply to hold title to property is not a charitable purpose on its own. The formal purpose of the title-holding entity must be phrased in such a manner that it is clear that the property that is held (or income from the property if applicable)^{Footnote 9} is to be devoted to charitable purposes.

An acceptable object would be: "To promote the efficiency and effectiveness of Charity ABC's charitable programs by providing and maintaining facilities for this purpose."

iii) Activities

Title-holding organizations carry on varying degrees of activity. On the least "active" end of the scale, entities simply hold title to the property of another registered charity. The title-holding entity may also provide a more comprehensive range of services such as property management services, or other support services. Some applicants may also, in addition to performing a support function, be involved in securing and developing additional properties to be used for charitable purposes.

It is the view of the Directorate that the simple act of holding title to property on behalf of another registered charity is sufficient for registration purposes. A title-holding organization may have additional activities related to its purpose and, provided these can be demonstrated to be charitable, will also be acceptable.

iv) Reporting expenses

The disbursement quota requires that charities expend amounts by way of their own activities or as gifts to qualified donees. To "expend" generally means to spend, to use up, or to consume an asset. It implies something transferred once and for all, a giving up of title. Consequently, a mere permission to occupy the premises does not constitute an expenditure nor does it constitute a gift to the tenant charity.

Depending on the circumstances of the individual applicant (for example, how the property is acquired, how it is used, and the extent of the services provided), the title-holding entity may have difficulty meeting its disbursement quota.

When a title-holding charity pays expenses relating to the property, it must allocate these expenditures according to the use made of the property by the tenant charity (for example, 60 percent charitable, 20 percent fundraising, 20 percent administrative).

If the tenant charity transfers funds to the title-holding charity to pay expenses relating to the property, the tenant charity must also allocate the payments according to its use. For the purpose of reporting on the T3010, the payments between the two charities should not be recorded as gifts. Instead, the tenant charity should report the amount as an occupancy cost and allocate it as appropriate on the T3010. The recipient title-holding charity should report these amounts as rental income.^{Footnote 10}

For the purposes of the disbursement quota if a property is used in the delivery of charitable programs or administration by the tenant charity or charities, the value of this property would not be included in the calculation so it doesn’t create an expenditure requirement.^{Footnote 11} However, the value of the property, which is not used in the charitable programs or administration of the tenant charities (for example, property held as an investment or used solely for fundraising) would be included in the calculation.

If the title-holding entity acquires the property by way of gift, it can avoid disbursement quota problems in the year following acquisition by having the donation made in the form of a ten-year gift (or other form of enduring property) if the property comes from a non-charity, or in the form of a specified gift if it comes from a charity.

The Act also provides alternatives, such as disbursement excess that could be applied to incurred shortfalls, or an application to reduce the disbursement quota. This last remedy, however, remains for exceptional, non-recurring circumstances and is not used to remedy an ongoing problem. If the landlord entity's proposals will render it continually incapable of meeting its disbursement quota, it will not be registered.

References

• Summary policy CSP-C10, Purposes beneficial to community
• Policy commentary CPC-022, Group insurance rates for registered charities
• Registered Charities Newsletter, Issue No. 21