The purpose of this CRA guidance is to clarify the Canada Revenue Agency’s (CRA) requirements for the potential charitable registration of head bodies and their internal divisions.
Many larger charities are structured in such a way that there is a head organization with subordinate divisions operating below it. For example, a charity that operates across the country may do so by way of local ‘chapters’ overseen by a main organization, or a religious governing body may have several related parishes.
In certain circumstances, these subdivisions of a charity will be permitted by the CRA to have their own charitable registrations as “internal divisions”, as a sort of extension of the main charity’s registration. This allows the subdivisions to issue charity tax receipts on their own behalf, despite the fact that they are not separate legal entities from the head charity.
The CRA recently clarified its policies on this process in a new Guidance called “Head bodies and their internal divisions”.[1] The Guidance explains what qualifies as a head body versus an internal division, and the type of relationship that has to exist between the head body and the internal divisions in order for the latter to be eligible for this kind of registration.
The Guidance describes “internal divisions” specifically as extensions of a head body that are not independent legal entities but rather operate under the governing documents of the head body and for the purposes of the head body. The head body must have the power to create and close the internal divisions, own their property, appoint and control their boards of directors, approve their budgets, and exercise some control over their activities.
If these requirements are all met, an internal division may apply to the CRA for a subordinate charity registration. Its application must indicate that it is an internal division and must include a letter of good standing from the head body that confirms certain facts about the internal division and its relationship to the head body. Rather than having to provide governing documents of its own, as is normally the case, the internal division must include the governing documents of the head body.
Once granted, the charitable registration of an internal division depends on the continuing registration of its head body. If the head body loses its charitable registration, all its registered divisions will lose theirs as well. The internal division must also continue to operate for the purposes of the head body rather than any independent purposes of its own, and must keep the same fiscal year-end as the head body.
Beyond these requirements, an internal division’s charitable registration is much like that of any other charity. It will receive a Business Number of its own, which will be the number of its head body but with the identifier (RR0001) being changed to the next available number (RR0002 for the first internal divisions, RR0003 for the second one, etc.).[2] It must file its own annual T3010 charity information return and financial statements, issue charity donation tax receipts under its own name and number, and keep the CRA up-to-date with changes to any of its directors, address, operating name, etc.
If your organization has internal divisions that meet the criteria described in the guidance, it may wish to encourage them to seek their own registrations to take some administrative burden off the head body and to enable them to fundraise more effectively for themselves.
By: Alexandra Tzannidakis
[1] CG-028, available online at <https://www.canada.ca/en/revenue-agency/services/charities-giving/charities/policies-guidance/head-bodies-and-their-internal-divisions.html>
[2] Note that this system is in the process of changing, and future internal divisions will receive their own totally unique business number.
Drache Aptowitzer LLP
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