A charitable organization shall be considered to be devoting its resources to charitable activities carried on by it to the extent that
(a) it carries on a related business;
(b) in any taxation year, it disburses not more than 50% of its income for that year to qualified donees; or
(c) it disburses income to a registered charity that the Minister has designated in writing as a charity associated with it.
Charitable organizations are required under the Income Tax Act to devote substantially all of their resources to their own charitable activities. Section 149.1(6) clarifies what counts toward this requirement. Notably, a charitable organization may disburse up to 50% of its income to qualified donees (other registered charities, government bodies, etc.) and still be considered to be devoting resources to charitable activities.
This rule is important for organizations that want to both run their own programs and make grants to partner organizations. Exceeding the 50% disbursement threshold — i.e., primarily acting as a grant-maker rather than an operator — risks re-classification as a foundation rather than a charitable organization, which carries different rules and restrictions.
B.I.G. Charity Law Group advises charitable organizations on structuring their activities and disbursements to maintain compliance and charitable status. Contact us for a governance review.
Yes, but only up to 50% of its income. If an organization primarily makes grants rather than running its own programs, the CRA may designate it as a foundation, which is subject to different rules.
A related business is a commercial activity that is directly linked to the charity's purposes or operated substantially by volunteers. Revenue from a related business counts as part of the organization's resources devoted to charitable activities.
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