The Due Diligence Approach Recommended by the CRA for Grant-Making to Non-Qualified Donees

Charitable organizations play a pivotal role in societal development, and effective grant-making is at the heart of their impact. The Canada Revenue Agency (CRA) offers a due diligence model for charities to enhance their grant-making process. This model not only aligns with the Income Tax Act requirements but also ensures a strategic and responsible approach to charity. Let's delve into the key aspects of this model.

Key Elements of the Due Diligence Model:

Alignment with Charitable Purpose:

Charities need to ensure that their grant activities directly contribute to their core mission and objectives. This alignment is vital for the success and legitimacy of the grant.

Risk Assessment:

Understanding and categorizing potential risks (low, medium, or high) is crucial. This assessment guides charities in navigating various challenges and complying with legal requirements.

Due Diligence Based on Risk:

The level of due diligence should correspond to the identified risk. This involves using tailored accountability tools to address specific concerns effectively.

Collaboration and Accountability:

Working closely with grantees in applying these tools fosters a transparent and cooperative relationship, essential for the success of the grant.

Documentation:

Thorough record-keeping of the due diligence process is essential for accountability and for tracking the progress and impact of the grant.

Consistency in Grant-Making:

Uniform Approach:

A consistent and fair approach to handling similar grants ensures equity and integrity in the grant-making process.

Benefits of Due Diligence:

Protecting the Charity:

Appropriate due diligence shields the charity in cases where grantees face challenges in meeting the grant agreement, reducing risks and fostering successful outcomes.

Acknowledging Necessary Expenses:

The CRA recognizes that managing grants incurs expenses, which are deemed necessary for effective grant administration.

The CRA’s due diligence model offers a structured and responsible framework for charities in grant-making. By adopting this model, charities can significantly enhance their impact, ensuring a responsible, transparent, and impactful approach to supporting their causes.