On November 27, 2020, the Canada Revenue Agency ("CRA") released CG-029, a new Guidance on relief of poverty and charitable registration. This Guidance, which replaces Summary policy CSP-P03, Poverty, explains CRA's administrative policy on charity law, including the criteria an organization with purposes to relieve poverty must meet to be eligible for charitable registration. The following summary answers the major questions addressed in the Guidance.
How Can Charities Relieve Poverty?
CRA explains that in order for an organization to show that it is relieving poverty, it must establish that:
- its beneficiaries are experiencing poverty; and
- its activities provide a charitable benefit that relieves the poverty of its beneficiaries.
What is the Charity Doing to Relieve Poverty?
While poverty is not defined in the Income Tax Act (Canada) or case law, CRA's interpretation is that people experiencing poverty do not have the ability to acquire the basic necessities of life or simple amenities that are seen as necessary for a modest but adequate standard of living. Courts have agreed that poverty is a relative term and that it depends on a person's environment and individual circumstances. Accordingly, poverty may be experienced differently between and within countries.
Charities can relieve poverty by helping beneficiaries acquire the basic necessities of life, such as shelter, clothing, food, personal hygiene items, eye glasses, health care, and access to water and sanitation. Charities can also help beneficiaries by providing them with simple amenities, necessary for a modest but adequate standard of living and by having activities that promote social inclusion. Some examples include: learning materials and school supplies, computers, internet access, furniture and appliances, passes for public transportation, child care services, children's recreational activities and camps, and legal services. Benefits provided to beneficiaries are only charitable to the extent that they are shown to relieve poverty. An organization that provides beneficiaries with a benefit that is more than what is needed to relieve their poverty may be delivering an unacceptable private benefit.
Can Charities Prevent Poverty?
The Guidance states that charities cannot be established to prevent poverty, since preventing poverty implies that the beneficiaries are not experiencing poverty, which is a requirement for beneficiaries under the relief of poverty category. However, charities can have activities that have the effect of preventing poverty. These activities typically advance purposes in one or more of the other charitable categories (such as advancement of education, advancement of religion, and other recognized purposes beneficial to the community) where beneficiaries are not restricted to those that are poor.
Who is the Charity Helping?
The Guidance notes that an organization relieving poverty must consider how it will define the members of the public who are permitted to receive charitable benefits from its activities (the organization's eligible beneficiaries) and how it will select the beneficiaries who will receive charitable benefits (the organization's recipients).
Defining Eligible Beneficiaries
Generally, an organization will define its eligible beneficiaries in its charitable purposes, such as those in need, those experiencing poverty, or those who are poor. The eligible beneficiaries must represent the public or a sufficient section of the public and must not be unreasonably restricted.
Selecting Beneficiaries
An organization should have criteria in place to select who will benefit from its poverty relief activities. Factors that will determine the appropriateness of an organization's selection criteria and process include the value and frequency of the benefit being provided, and the location of the organization's programs. To evaluate its beneficiaries to make sure they need poverty relief, charities can: (i) use models of poverty indicators that have been introduced by the government for social programs, such as the Low-Income Cut-Off, the Low Income Measure, the Market Basket Measure, and the Core Need Income Threshold; or (ii) establish their own criteria, such as employment income and status, number of dependents, and medical and child care expenses. Documenting the criteria used to select beneficiaries, and how the relief is being provided will be essential to maintaining adequate books and records.
Lastly, the Guidance notes that there are exceptions where activities that relieve poverty can be made available to recipients who are not experiencing poverty (non-eligible recipients). This may occur if doing so furthers the charity's purposes, and the benefits provided to the non-eligible recipients are necessary, reasonable and proportionate to the effect of having those recipients being included in the activity has on the participation of eligible beneficiaries.
Conclusion
Miller Thomson LLP recommends that both existing charities whose purpose is to relieve poverty and organizations that are considering charitable registration under the relief of poverty category review the Guidance carefully. Take the time to consider how CRA's views impact your particular organization. Please reach out to any of our team members for assistance in applying the Guidance to your circumstances.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
