This article is adapted from archived Treasurer’s Corner articles, and Canadian Council of Christian Charities resources on agency agreements.
According to the Income Tax Act (ITA), a registered charity can only use its resources in two ways, whether inside or outside Canada:
- On its own activities (those which are directly under the charity’s control and supervision, and for which it can account for any funds expended); and
- On gifts to Qualified Donees
A charity usually carries on its activities using its staff (including volunteers, directors, or employees) or through an intermediary (for example, an agent or contractor). However, when using an intermediary, it must still direct and control the use of its resources. A charity cannot merely be a conduit to funnel money to an organization that is not a qualified donee.
(In this context, an intermediary is a person or non-qualified donee who is separate from the charity, but that the charity works with to carry out its own activities.)
What is an Agency Agreement?
An Agency Agreement is a document used to establish a working relationship with the intermediary or non-qualified donee. The definition will be outlined here, and more details on the contents and responsibilities that constitute an Agency Agreement will be reviewed in next month’s newsletter.
An Agency Agreement is a written agreement between a charity and an intermediary who provides services outside Canada. It helps demonstrate how the Canadian charity exercises control and direction over its own resources and activities for a particular project or projects carried out by an agent. Among other things, an Agency Agreement should include:
- the obligations of the agent to the charity;
- a funding schedule and the reporting obligations of the agent;
- the conditions of the charity’s involvement;
- the funds that will be made available;
- the activities the agent is to carry out on behalf of the charity.
Questions & Answers:
Q: Must a registered charity in Canada only be allowed to make donations to another registered charity with the Charities Directorate, otherwise known also as “qualified donees”?
A: Yes, donations can only be donated to another registered charity within Canada, otherwise known as “qualified donees”. The Charities Directorate search engine provides an online access website to search out if a registered charity is indeed registered with the Charities Directorate and if the registered charity is still an active entity or if its charitable status has been revoked, because of past offences. The search engine is here: https://www.canada.ca/en/revenue-agency/services/charities-giving/charities-listings.html
Q: Can a registered charity then support overseas mission work of another organization, that is not registered with the Charities Directorate in Canada?
A: No, such financial support is deemed unlawful for the registered charity in Canada, if the donations are sent to “non-qualified donees”.
Q: How does the registered charity mitigate in such a case when there is activity involved with a non-qualified donee?
A: In such a case, the registered charity can deploy its own staff to work on the grounds in the mission field in discussion or an intermediary can be established, commonly known as a third-party arrangement. The establishment of an intermediary will require a signed Agency Agreement with the mission agency directly working overseas.
Q: Can an Agency Agreement be used to deal with a “non-qualified donee” in Canada?
A: Yes, it is possible to establish an intermediary with the organization in Canada by using the proper Agency Agreement, under special circumstances. It is recommended that the registered charity must review such arrangements in greater details to abide with the written rules of the ITA in this case.
We will examine the technical requirements of an Agency Agreement in next month’s issue of the Treasurer’s Corner.
This article was published in the May 2018 edition of Treasurer’s Corner. To subscribe, click here.