Navigating the CRA’s guidance on poverty relief for charities in Canada

Not-for-profit organizations must align their operations with specific charitable purposes when applying for charitable status under federal and provincial not-for-profit legislation. Accordingly, charities often list poverty alleviation as their main objective, with the goal of offering vital services such as affordable housing, food security, and access to basic needs. As a result, the Canada Revenue Agency (“CRA”) carefully oversees the activities of these charities to ensure they adhere to relevant regulations.

Recently, the CRA updated Guidance CG-029, Relief of poverty and charitable registration (“Guidance”), to provide clarity on how registered charities can meet the requirements to qualify as a charity focused on poverty relief in Ontario.

If you're involved with a charity focused on poverty relief, this summary of the CRA’s Guidance can help clarify how to navigate the CRA's definition of poverty, ensure tax compliance under the Income Tax Act (“ITA”), and meet legislative standards, including ongoing compliance with the public benefit test.

As a reminder, the CRA’s public benefit test requires that a charity's activities benefit the public, not just a private group. To pass the test, the charity must demonstrate that its purposes are accessible to the public and provide more benefit than harm. This is crucial to maintaining charitable status, particularly for charities offering services aimed at alleviating poverty.

Determining the eligibility of beneficiaries must be carefully considered and documented

Charities assessing beneficiaries’ eligibility for their services can either use government-defined poverty indicators (e.g., low-income cut-offs) or create their own criteria, which may consider factors like employment status, number of dependents, assets, medical expenses, total household income (including pension, social assistance, child support, spousal support), etc.

When creating custom assessments, charities should prioritize fairness, transparency, and consistency, ensuring that criteria are clear, relevant, and aligned with their mission. They should avoid overly complex or intrusive requirements that could create barriers for applicants.

For charities focused on providing affordable housing, the Guidance recommends that they consider provincial or municipal low-income housing criteria that align with Government of Canada-funded affordable housing programs when assessing eligibility. Specifically, the Guidance includes examples from Québec, British Columbia, Alberta, and Toronto.

Regardless of the criteria used, the CRA emphasizes the importance of documenting:

1. The selection criteria used to select beneficiaries that are experiencing poverty.
2. How the charitable benefits are provided to beneficiaries that are experiencing poverty.

Regular reviews and stakeholder input can help refine the assessment process and ensure it effectively meets the charity’s purpose.

Prevention of poverty is not a charitable purpose

Stemming out of common law principles, the CRA emphasizes that a purpose focused solely on preventing poverty is not considered charitable.^[1] Charities aimed at relieving poverty must provide benefits to individuals who are experiencing poverty at the time the assistance is given. The mere risk of poverty is not considered the same as actually experiencing it.

When developing eligibility criteria, charities should ensure fairness by avoiding bias, considering multiple factors beyond income (like medical expenses, dependents, and local cost of living), and making the process transparent and clear. The criteria should be flexible enough to address unique circumstances and align with the charity’s goals while remaining feasible within the organization’s capacity.

Input from beneficiaries and experts can help ensure that criteria are properly relevant, and the charity should regularly review and adjust criteria to stay compliant with legal standards and respond to changing needs. Lastly, the criteria must be manageable within available resources to prioritize those most in need.

While charities may not be established for the purpose of preventing poverty, activities that help prevent poverty may still be conducted, and captured under other charitable categories, like the advancement of education or religion. For example, a charity may work to prevent poverty by offering job training or financial literacy programs, but such activities must also align with a charitable purpose, such as advancement of education.

Additionally, the charity must avoid private benefit concerns, ensuring that its services are available to the broader public, not just a select group. A private benefit can be identified as a benefit provided to a person or organization that is not a charitable beneficiary, or to a charitable beneficiary where a benefit goes beyond what is considered to be charitable. Any fees or resources provided must support the public good and not result in private profit, as charities must demonstrate that their activities benefit the community to maintain their charitable status.

Charitable benefits that relieve poverty can extend to non-charitable beneficiaries as incidental private benefits

This Guidance further acknowledges that charitable benefits that relieve poverty may be provided to non-charitable beneficiaries if it is incidental to the charity’s purpose and necessary for the public benefit.

The Guidance provides an example of a charity providing a school lunch program. This activity would fulfill the charitable purpose of relieving poverty by ensuring that economically disadvantaged students receive nutritious meals, but to avoid stigmatizing those in need and to promote inclusivity, the program may extend meals to all students, not just those identified as charitable beneficiaries. This would be an allowable incidental private benefit that is necessary, reasonable, and proportionate to the public benefits derived from advancing the charitable cause.

Charities can also collaborate with a non-qualified donee (grantee or intermediary)

When working with non-qualified donees, the Guidance now incorporates qualifying disbursement rules to which charities must adhere. These rules allow charities to make grants to non-qualified donees, while still ensuring that charities are using funds for their intended purpose to maintain eligibility and compliance with the ITA.

An extensive discussion on it can be found in the following Guidance CG-032, Registered charities making grants to non-qualified donees.

For charities that are using intermediaries, which are non-qualified donee individuals or organizations, separate from the charity but working to carry out the charity’s activities, such intermediaries must adhere to direction and control rules. Direction and control rules stipulate that charities must exercise “full direction and control” over their “own activities” whenever working with non-qualified donees.

A extensive discussion on these rules can be found at the following guidances: CG‑002, Canadian registered charities carrying out activities outside Canada, CG‑004, Using an intermediary to carry out a charity’s activities within Canada.

We can help

In light of this Guidance, charities focused on alleviating poverty should take an opportunity to review and update their beneficiary eligibility criteria to ensure compliance with their charitable purpose, as well as their internal procedures for receiving and distributing donations to qualified and non-qualified donees.

Whatever the task may be, we are here to assist. If you have additional questions on this relief of poverty Guidance, or would like assistance surrounding whether your organization is meeting its charitable purposes Gowling WLG's Tax Exempt Entities group is ready to assist.