CRA's Due Diligence Model for Non-Qualified Donee Grants

Charitable organizations play a vital role in societal development, and responsible grant-making is central to their impact. Since June 2022, registered Canadian charities have had a new way to work with organizations that do not hold registered charity status — known as non-qualified donees. A non-qualified donee is any organization, in Canada or abroad, that contributes to charitable activities but is not a registered charity under the Income Tax Act (ITA). Common examples include local community groups, foreign NGOs, unregistered social service organizations, Indigenous-led community bodies, and international humanitarian organizations operating outside the Canadian registered charity system. Since June 2022, registered Canadian charities have had a formal pathway to fund these organizations through the qualifying disbursement regime introduced by Budget 2022. To guide charities through this regime, the Canada Revenue Agency (CRA) published Guidance CG-032, Registered Charities Making Grants to Non-Qualified Donees, on December 19, 2023, following a yearlong consultation process. This guidance sets out the CRA's recommended 5-step due diligence model for compliant grant-making. As of 2026, CG-032 remains the operative guidance — no amendments have been issued since its release.

This article walks through each element of that model in plain language, covering the legal foundation, the eligibility conditions that must be met before any grant proceeds, the risk assessment framework, accountability tools, reporting obligations, and the key distinction between the new grant model and the older intermediary/direction-and-control approach.

What Is a Non-Qualified Donee?

A non-qualified donee is any organization — in Canada or abroad — that contributes to charitable activities but does not have registered charity status with the CRA. This includes local community groups, foreign NGOs, unregistered social service organizations, and other entities that carry out work aligned with charitable purposes but sit outside the formal registered charity system.

Qualified donees — by contrast — are defined in the Income Tax Act as organizations that can issue official donation receipts. They include registered charities, Canadian amateur athletic associations, registered municipalities, and certain housing corporations. The CRA maintains a public list of qualified donees. Any organization not on that list is a non-qualified donee for the purposes of CG-032.

Legal Foundation — ITA s. 149.1(1) and Guidance CG-032

Before examining the due diligence steps, it is important to understand the legal framework on which they rest.

The term "qualifying disbursement" is defined in s. 149.1(1) of the Income Tax Act. A qualifying disbursement is an amount paid by a registered charity to a grantee organization where the amount is to be applied exclusively to charitable activities that further a charitable purpose of the granting charity, and where the granting charity has maintained documentation sufficient to demonstrate that this requirement has been met. This definition is the statutory anchor for all of the accountability obligations in CG-032.

Guidance CG-032, Registered Charities Making Grants to Non-Qualified Donees, is the CRA's administrative interpretation of how s. 149.1(1) applies in practice. Published on December 19, 2023 (Reference Number CG-032), it replaced the draft guidance issued on November 30, 2022, and reflects feedback gathered during a yearlong public consultation. CG-032 does not create law — the ITA does — but it sets out the CRA's recommended approach and the accountability standards the CRA will apply when reviewing a charity's grant-making activities.

Charities that follow CG-032 are not required to adopt the CRA's specific recommended steps, provided they can demonstrate through their books and records that they have met the underlying statutory requirements by other means. In practice, however, following the CG-032 framework is the most straightforward and defensible path to compliance.

What Changed in 2022 — And Why This Guidance Matters

Before the Budget 2022 amendments, charities could only work with non-qualified donees by engaging them as intermediaries. Under that model, the charity had to maintain full direction and control over the intermediary's use of the charity's resources and be able to intervene in all decisions — a demanding standard that limited flexibility and created significant compliance burden.

The June 2022 amendments to the ITA introduced a new option: the qualifying disbursement. Under this model, a charity can transfer resources to a non-qualified donee as a grant, without maintaining direction and control over how the grantee uses those resources. This is a meaningful structural shift — but it comes with its own accountability framework, which is what CG-032 sets out.

Charities now have two distinct pathways for working with non-qualified donees:

• The intermediary/direction-and-control model (unchanged from prior law) — the charity conducts the activity itself through the non-qualified donee as an agent, maintaining full control over how resources are used
• The grant/qualifying disbursement model (new since June 2022) — the charity funds the non-qualified donee's own activities through a grant, subject to the CG-032 accountability requirements, without needing to maintain direction and control

The practical difference is significant. Under the intermediary model, the activity is legally the charity's own — the non-qualified donee is acting on the charity's behalf. Under the grant model, the activity belongs to the grantee — the charity is funding the grantee's work, not directing it. This distinction determines which accountability framework applies and shapes the entire compliance approach.

‍

‍

Charities that previously worked with non-qualified donees exclusively through the intermediary model should assess whether transitioning some or all of their arrangements to the qualifying disbursement model is appropriate — and should seek legal advice before doing so.

Eligibility Conditions — What Must Be Satisfied Before a Grant Proceeds

CG-032 sets out three eligibility conditions that must all be satisfied for a payment to a non-qualified donee to constitute a valid qualifying disbursement under the ITA. These are not due diligence steps — they are threshold requirements. If any one of these conditions is not met, the payment does not qualify as a legitimate grant under the framework, regardless of what due diligence was performed.

Condition 1 — The grant must further one of the charity's own charitable purposes

The grant must advance at least one of the granting charity's own charitable purposes, as set out in its governing documents. It is not sufficient for a grant to advance charitable purposes in a general sense — the purpose must be one specifically attributed to that charity in its constating documents. If a charity's current governing documents do not cover the intended grant activity, the charity must amend its purposes and obtain CRA approval before proceeding.

Condition 2 — The resources must be applied exclusively to charitable activities

The non-qualified donee must apply the resources received exclusively to charitable activities that further the granting charity's charitable purposes. The grantee's activities must pass the public benefit test, align with Canadian public policy, and must not confer an unacceptable private benefit. Activities that are charitable in Canada may also be subject to additional scrutiny when carried out abroad — for example, it is not charitable under Canadian law to support the armed forces of a foreign country, even if a similar activity in Canada would qualify.

Condition 3 — The charity must maintain sufficient documentation

The granting charity must maintain documentation sufficient to demonstrate that conditions 1 and 2 have been met. The ITA requires this documentation — it is not optional, and it cannot be reconstructed after the fact. The CRA must be able to review the charity's books and records and verify the grant's purpose, the grantee's use of resources, and that the charity exercised due diligence throughout the grant's duration.

Only once these three conditions are satisfied does it make sense to proceed to the due diligence steps in CG-032 Section 3.

The CRA's 5-Step Due Diligence Process Under CG-032

Section 3 of CG-032 sets out the CRA's recommended due diligence steps for charities making grants to non-qualified donees. These steps sit on top of the three eligibility conditions above — they are the practical mechanism through which a charity demonstrates it has met those conditions. A charity may use approaches other than those recommended in CG-032, but it must be able to show in its books and records that it has met the underlying accountability requirements through those alternative measures.

Step 3.1 — Establish That the Grant Furthers the Charity's Charitable Purpose

The first step is to confirm that the grant activity directly advances at least one of the charity's own charitable purposes — specifically as outlined in its governing documents. This is a stricter standard than it might appear. A grant that advances a charitable purpose generally, but that is not one of the charity's own documented purposes, does not qualify under CG-032.

If a charity's governing documents do not currently include a purpose broad enough to cover the intended grant activity, the charity must amend those purposes first — and any amended purposes require CRA approval before they can be implemented. Charities should review their governing documents before committing to a grant relationship with a non-qualified donee.

Step 3.2 — Assess the Grant's Risk Level

The CRA requires charities to assess the risk level of each proposed grant — low, medium, or high — before deciding what due diligence to apply. The CRA defines risk for this purpose as conditions that could compromise the charity's registration or the public's trust in the charitable sector.

CG-032 provides a non-exhaustive list of risk factors for charities to consider:

• The charity's prior experience with the grantee
• The grantee's experience level and track record
• The purposes and governing documents of the grantee organization
• The grantee's governing structure and internal controls
• The grantee's regulation and oversight in its home jurisdiction
• Private benefit concerns
• The nature of the grant activity
• The grant amount and nature of the resources being granted
• The duration of the grant
• Political or security conditions in the grantee's jurisdiction

The CRA ties risk assessment directly to grant value and requires the accountability tools applied to match the tier. The three tiers are:

‍

‍

Charities should record their risk assessment and the reasoning behind it in their board meeting minutes or equivalent governance records. If conditions change significantly during the grant period, a reassessment is required.

Step 3.3 — Determine and Apply Accountability Tools Based on Risk

Once the risk level has been determined, the charity selects accountability tools proportionate to that risk. The CRA is clear that it will take a reasonable, flexible, and proportionate approach — the depth of accountability measures should match the complexity and risk of the specific grant.

Common accountability tools recommended in CG-032 include:

• Written grant agreements — detailing the grant's purpose, permissible uses of funds, reporting obligations, and conditions for continued disbursement. Low-risk grants may rely on a simple email exchange; high-risk grants require a formal, comprehensive written agreement.
• Periodic fund transfers — disbursing funds in tranches tied to demonstrated performance, rather than in a single lump sum.
• Separate fund tracking — requiring the grantee to keep grant funds in a separate account or sub-account, with dedicated records.
• Reporting schedules — requiring the grantee to submit regular progress or financial reports to the charity during the grant period.
• Site visits and monitoring — particularly relevant for medium- to high-risk grants or those involving significant field activity.
• Receipts, invoices, and expenditure records — retained by the grantee and made available to the charity upon request.

Charities do not need to apply every tool in every situation. The key question is whether the tools selected are sufficient — given the risk tier — to demonstrate that the grant was used exclusively for charitable purposes that further the charity's own purposes.

Step 3.4 — Work Collaboratively with the Grantee

CG-032 emphasizes that the accountability tools should be applied in cooperation with the grantee — not imposed unilaterally. A transparent, collaborative grant relationship is more likely to succeed and more likely to generate the documentation the CRA expects to see.

This step also reflects a practical reality the CRA acknowledges: despite a charity's best efforts, it may not be able to guarantee that a grant will be applied exactly as intended. The CRA's standard is not perfection — it is reasonable due diligence consistently applied throughout the life of the grant. What matters is that the charity can demonstrate it took appropriate steps and responded appropriately when issues arose.

Step 3.5 — Document Throughout the Grant's Duration

Documentation is not a one-time task at the start of the grant — it is an ongoing obligation throughout the grant's duration. The CRA must be able to review a charity's books and records and determine three things:

• That the charity's grants meet the accountability requirements
• That the grantee's use of resources can be verified
• That the grantee continued to use the resources for the purposes and activities set out in the grant's terms

The CRA recommends that charities maintain documents showing: (1) the grant's purpose; (2) that the non-qualified donee exclusively applied the resources to that purpose; and (3) that the charity exercised due diligence to meet these requirements throughout the grant.

The depth of documentation will vary by risk tier — but in all cases, thorough records protect the charity in the event of a CRA audit or compliance review.

Reassessment When Conditions Change

The CG-032 due diligence process does not end once a grant is approved. The CRA requires charities to conduct a reassessment of the grant's risk level whenever significant changes in grant conditions occur. If the risk level changes, the accountability tools and the grant's terms should be updated accordingly.

Practical triggers for reassessment include:

• A significant change in the grantee's leadership or governance structure
• Escalation in political instability or security conditions in the grantee's jurisdiction
• A change in the grant amount or duration
• Deviation from the agreed grant activities or expenditure plan
• Evidence that funds may not be being used exclusively for charitable purposes
• The grantee entering financial difficulty or ceasing operations

If the reassessment results in a higher risk tier, the charity should work with the grantee to adjust the accountability framework — for example, moving from email-based reporting to a formal written agreement, or pausing disbursements pending clarification.

T3010 Reporting Requirements for Qualifying Disbursements

The 2022 amendments to the Income Tax Regulations introduced specific reporting obligations for charities making qualifying disbursements to non-qualified donees. These are reported on the T3010, Registered Charity Information Return.

A charity must disclose the following on its T3010 for each grantee that received total qualifying disbursements exceeding $5,000 in a taxation year:

• The name of the grantee organization
• The purpose of each qualifying disbursement
• The total amount disbursed to that grantee in the year

This disclosure requirement applies to both cash and non-cash qualifying disbursements. For non-cash grants, the charity must be able to determine the fair market value of the resources granted in order to meet its reporting requirements and fulfil its disbursement quota obligations.

Charities should ensure that their grant-tracking systems are set up to capture this information on a per-grantee, per-taxation-year basis from the outset of any grant relationship — retroactive reconstruction of records is both difficult and risky in a compliance review.

Special Situations: Pooled Grants and Non-Cash Grants

Pooled Grants

When multiple charities jointly fund a single non-qualified donee through a pooled grant arrangement, each participating charity retains its own accountability obligations under CG-032. The CRA recommends that each charity conduct due diligence not only on the recipient grantee but also on the other grantors it is entering into a relationship with.

Given the often urgent nature of pooled grants — for example, emergency humanitarian responses — the CRA recognizes that there may not be time for extensive upfront due diligence. In such cases, charities should document their rationale for proceeding, note the steps taken to mitigate risk (such as consulting sector experts or starting with a smaller initial grant), and implement accountability tools as quickly as circumstances allow.

Non-Cash and Charitable Goods Grants

When a charity grants non-cash resources — such as medical supplies, school materials, or equipment — rather than cash, this is generally considered a lower-risk activity. The nature of the goods makes it more likely they will be used for charitable purposes. That said, charities should still assess whether any additional due diligence is warranted based on the specific circumstances.

One significant restriction applies to real property: in most cases, a charity may not transfer the title or ownership of real property to a non-qualified donee, as the land or buildings might later be used for non-charitable purposes. Charities considering real property grants should obtain legal advice specific to their situation.

Benefits of the CRA's Due Diligence Model

Protecting the Charity

Appropriate due diligence under CG-032 protects the charity if a grantee encounters difficulties meeting the grant agreement's terms. A charity that has followed the recommended steps — and can document that it did — is in a significantly stronger position with the CRA than one that transferred funds without a structured process. The CRA's expectation is reasonable effort, not a guarantee of outcomes.

Administrative Expenses Are Recognized

The CRA explicitly recognizes that managing grants incurs expenses — research, legal agreements, monitoring, reporting. These costs are considered a necessary and legitimate part of grant administration. Charities should budget for due diligence costs when structuring their grant programs and should not view these costs as a reason to cut compliance corners.

Consistent and Equitable Grant-Making

Applying the CG-032 framework consistently across all grants — not just selected ones — ensures that the charity's grant-making process is fair, transparent, and defensible. It also signals to donors, board members, and regulators that the organization takes its accountability obligations seriously.

Conclusion

The CRA's 5-step due diligence model under CG-032 gives Canadian charities a practical, risk-based framework for extending their reach through grants to non-qualified donees — but flexibility comes with accountability. Charities that build proper documentation, proportionate oversight, and consistent grant-making practices from the outset are far better positioned for compliance than those that address issues only after they arise.

Applying CG-032 correctly requires a solid understanding of your charity's own purposes, the ITA's statutory requirements, and how the CRA will read your records in a review. Getting the eligibility conditions, risk tiers, and reporting obligations right from the start matters — and legal guidance before proceeding is strongly advised.

For questions about CG-032 compliance, qualifying disbursements, or T3010 reporting, B.I.G. Charity Law Group is ready to help. 

Reach us at dov.goldberg@charitylawgroup.ca, call 416-488-5888, or visit CharityLawGroup.ca. Schedule a free consultation today.

Frequently Asked Questions

What is a non-qualified donee under the Income Tax Act?

A non-qualified donee is any organization — in Canada or abroad — that contributes to charitable activities but does not hold registered charity status with the CRA. Common examples include local community groups, foreign NGOs, unregistered social service organizations, and Indigenous-led community bodies. Unlike qualified donees such as registered charities and municipalities, non-qualified donees cannot issue official donation receipts. Under the qualifying disbursement regime, registered charities can now make grants to non-qualified donees provided they comply with CG-032's accountability requirements.

What is CRA Guidance CG-032?

CG-032, Registered Charities Making Grants to Non-Qualified Donees, is the CRA's administrative guidance on how registered Canadian charities can make grants to non-qualified donees under the qualifying disbursement rules introduced by Budget 2022. Rooted in the definition of "qualifying disbursement" in ITA s. 149.1(1), it was published in final form on December 19, 2023, following a yearlong consultation process. As of 2026, it remains in effect without amendment.

What are the three eligibility conditions a charity must meet before making a qualifying disbursement?

Under CG-032, three conditions must be satisfied before a payment to a non-qualified donee qualifies as a valid qualifying disbursement: (1) the grant must further one of the charity's own charitable purposes as set out in its governing documents; (2) the non-qualified donee must apply the resources exclusively to charitable activities in furtherance of that purpose; and (3) the charity must maintain documentation sufficient to demonstrate that both conditions have been met.

What are the 5 steps in the CRA's due diligence model for grants to non-qualified donees?

The 5 steps under CG-032 are: (1) confirm the grant furthers the charity's own charitable purpose; (2) assess the risk level — low, medium, or high — based on the CRA's risk factors; (3) apply accountability tools proportionate to the risk level; (4) work collaboratively with the grantee throughout the grant; and (5) document the due diligence process in the charity's books and records from start to finish.

What is the difference between a low, medium, and high risk grant?

Under CG-032, a grant of up to $5,000 is considered low value; $5,001 to $50,000 is moderate value; and over $50,000 is high value. Risk is also shaped by factors such as the grantee's experience, political stability in the grantee's jurisdiction, and the charity's prior relationship with the grantee. Low-risk grants may require only a simple agreement or email records, while high-risk grants require comprehensive written agreements, staged disbursements, and robust monitoring.

Does a charity need a written agreement to grant to a non-qualified donee?

Not always — but it depends on the risk tier. For low-risk grants, a simple written exchange such as email correspondence may be sufficient. For medium- and high-risk grants, a formal written agreement with specific terms and conditions is strongly recommended and, in many cases, effectively required to demonstrate adequate accountability to the CRA.

What must charities report on their T3010 for grants to non-qualified donees?

For any grantee that receives more than $5,000 in total qualifying disbursements in a taxation year, the charity must disclose on its T3010: the name of the grantee organization, the purpose of each qualifying disbursement, and the total amount disbursed to that grantee in the year. This requirement applies to both cash and non-cash qualifying disbursements.

Can a Canadian charity make a grant to a foreign organization?

Yes. CG-032 applies to grants made to non-qualified donees both within and outside Canada. However, when granting internationally, the charity must comply with Canadian law and public policy as well as any applicable local laws in the grantee's jurisdiction. Political and security risk in the recipient jurisdiction is also an important risk factor in the CRA's assessment framework.

What happens if a grantee misuses grant funds?

If a grantee misuses grant funds, the charity's exposure depends significantly on whether it followed the CG-032 due diligence process. A charity that can demonstrate it applied appropriate accountability tools proportionate to the risk level — and responded appropriately when issues emerged — is in a much stronger position with the CRA than one that cannot. The CRA's standard is reasonable due diligence, not a guarantee of outcomes. Charities facing this situation should consult a charity lawyer promptly.

‍