Explainer: Non-qualified donees and the push to fund them anyway

How some foundations are finding work arounds to support non-qualified organizations doing important projects in their communities

Why It Matters

Without the resources to become qualified, grassroots organizations can miss out on a lot of funding opportunities that could advance their missions. When foundations do find ways to support these groups, their impact in the community can fuel meaningful and lasting change.

This story is in partnership with Philanthropic Foundations Canada (PFC).

When Tina-Nadia Chambers first started her organization, Amadeusz, she describes it as a group of youth who came together, wanting to do a project in their community. As she personally had friends who were incarcerated, the idea was to give them a pathway to finish high school and get that education while they were still in the justice system. 

“It was just to provide our friends with the opportunity to go to high school while they’re incarcerated with the hope that when they came back to communities, that our community would be better because our friends would be in a better position,” said Chambers. “We thought that maybe if they were able to finish school, maybe things would be different for them.” 

For the organization’s first few years, they were considered to be a non-qualified donee (NQD). Chambers said she always laughs thinking about this stage of the organization because of how little she knew about leadership in the non-profit sector, without an undergrad degree or college diploma. But what she had was lived experience. 

From that initial spark, it slowly grew into a trusted organization, into a non-profit, and now, Amadeusz is a registered charity focused on providing education, community programs, mentorship, and exceptional care for young people aged 18 to 35 who are incarcerated in Ontario. 

A number of grassroots organizations start out like Amadeusz with little to no knowledge on how to navigate the non-profit sector in Canada. Some others continue to remain grassroots, whether that be because they’re never granted status as a charity or due to the conscious choice that they want to work outside of the CRA’s system.

 

First, what is a qualified donee? 

In short, a qualified donee is an organization that can receive donations from registered charities — like foundations — and issue tax receipts for any donations it receives. Qualified donee status is governed by the Canada Revenue Agency (CRA). 

To be registered as a qualified donee, an organization must be a registered charity with the CRA, and continue to do two things: keep proper books and records and provide these to the CRA on request; and ensure that any official donation receipts issued meet the requirements of the Income Tax Act.

The following are types of organizations that would fall under the category of a qualified donee, according to the CRA: “charities, canadian amateur athletic associations, registered journalism organizations, foreign charities that have received a gift from Her Majesty in right of Canada, low-cost housing corporations for the aged, municipal or public bodies performing a function of government in Canada, municipalities, and universities outside Canada.” 

 

Who isn’t a qualified donee?

While the CRA’s qualified donee list of eligible groups covers a wide range of organizations, many grassroots groups often don’t have the resources to keep track of their records to the level required by the CRA, or have knowledge on how to navigate the non-profit world. As a result, they don’t meet the CRA’s requirements and are denied the status of a registered charity (and therefore qualified donee). 

Phylicia Davis-Wesseling from the Toronto Foundation explained that non-qualified donees are organizations often addressing priorities that are very niche in scope (or are overlooked), and that may have very localized approaches to their work.

“NQDs bring lived experience to their community work and community building and can be resident-led, a collective etc. In addition, NQDs often focus on particular neighbourhood(s) and create change at a micro level on many issues,” said Davis-Wesseling. She added that Toronto Foundation had its grant stream earlier this year called the Black and Indigenous Futures Fund, which was their first time directly funding non-qualified donees.

There are a number of reasons why organizations can be denied charitable status, causing them to remain as non-qualified donees. Davis-Wesseling explained that a major challenge for organizations who seek to obtain charitable status is the capacity — staff, funding — it takes.  

Obtaining charitable status…is beneficial, but for some NQDs it can take away from their work. And if you’re a small organization with volunteers or limited staff, doing the administrative pieces that CRA requires can be very challenging,” said Davis-Wesseling. 

“I think most importantly (and sadly) the way current funding models work — whether they be government, private foundations, public foundations or even individuals who donate, the work of NQDs — is often seen as not legitimate because of the fact they are not a registered charity. But so many amazing ideas and work is happening out there and it’s vital to start thinking outside of the box to support them,” said Davis-Wesseling. 

 

Who’s already supporting non-qualified donees — and how? 

Laidlaw Foundation works with many groups that aren’t registered as charities with the CRA, according to Tamer Ibrahim, youth collective impact manager at the foundation. Similarly, Toronto Foundation has also started to work with NQDs directly through their Black and Indigenous Futures Fund, and The Trustee Hub in Toronto also supports these groups to receive funding. 

There are two main pathways, explained Ibrahim, in how foundations creatively use the rules to help fund NQDs. The first is in a situation where a NQD has an organizational mentor — which is common for NQDs to have, according to Ibrahim. This mentor organization, which is a registered charity, acts as parent to the NQD while providing administrative support and most importantly, adopting all legal and financial responsibility for the group. 

When a NQD has an organizational mentor, a foundation that wants to support the NQD can grant the funding to this charitable organization that is supporting them. The organization receives the funding on behalf of the NQD, holds onto it, and manages the finances for the NQD as needed. 

The Trustee Hub, an initiative of the Toronto-based charity Neighbourhood Group, does exactly this. They’re currently supporting more than 40 community-led projects by providing administrative support as an organizational mentor. NQDs seeking support from The Trustee Hub simply have to fill in an application on their website. 

Another way to support NQDs is through a process called an organizational agency agreement. Ibrahim explains that this would be an agreement when a foundation appoints an agency (i.e. a NQD organization) to carry out charitable activities and projects which meet the objective of the proposed grant application to further the foundation’s charitable purpose.

This practice is well within the CRA’s mandate because in this scenario, a foundation is not technically funding a separate organization but instead supporting a group which is doing charitable work on behalf of the foundation. 

Furthermore, Laidlaw’s grant application process works in a way where they look at the idea, and the person behind that idea first. It isn’t until a grant application is approved for funding that Laidlaw gets back to the organization to figure out if they are qualified to receive that funding. If they aren’t, Laidlaw works with the group to support them and provide resources they need to get the funding. 

“I would say most of the grantees that walk in through Laidlaw’s doors are groups with innovative ideas and are looking for an opportunity to catalyze it, get it off the ground, and just need funding to be able to set things into motion accordingly, with support from local community advocates,” explained Ibrahim. At the heart of the work that they do, foundationally speaking, comes from their lived experience.”

Ibrahim argued foundations should take a nurturing approach when working with non-qualified donees — it isn’t just about writing a cheque, he said, but also helping with capacity-building for these groups so that they can develop and scale their work to new communities. 

 

Who’s trying to change things — and why?

Still, organizations like the Laidlaw Foundation — who are supporting non-qualified donees despite the barriers — are relatively rare. 

“How do you demonstrate legitimacy?A group of passionate social justice advocates in a community that understand an issue area, isn’t that legitimate enough? Why does it have to be so technical when it comes to CRA compliance and regular reporting?” questioned Ibrahim. 

Davis-Wesseling said there are few community foundations that do support NQDs for small or micro projects, however, “the sector generally does not provide funding to NQDs on a larger scale but there is an interest in seeing this change.” 

Foundations that do fund NDQs do it because “they know building capacity is not just about funding but entails a whole ecosystem of connection, mentorship and relationship building,” said Davis-Wesseling. “Though I am still relatively new to Toronto Foundation and the philanthropic sector, I can see firsthand through BIFF (Black and Indigenous Futures Fund) how important it is to not only fund this work but to provide opportunities to support NQDs in their growth as an organization,” she added. 

There’s also a group called Purposes and Activities Working Group (PAWG) that’s a part of Canada’s advisory committee on the charitable sector (ACCS), which specifically lists non-qualified donees as an element of discussion. “So the discussions are happening, which is great, but I hope at the end of it all, they can advocate for changes to the CRA rules in which NQDs no longer experience barriers and are shut out from the charitable sector,” said Davis-Wesseling. 

 

The impact 

In the early days of Amaduesz, Chambers was introduced to someone in the Laidlaw Foundation through her mentor at the time. Laidlaw Foundation is a family foundation based in Toronto that prioritizes providing grants to young people with lived experience in the justice, education and child welfare system. 

Through this connection she made, Chambers was sent an application to a grant she was encouraged to apply for with her idea to start Amadeusz. 

“I was very, very intimidated by this grant but I knew that if I wanted to share my idea, I had to write this grant,” said Chambers, recalling that she ended up writing whatever she could and answered all the questions to the best of her ability, but didn’t expect anything out of it. 

Chambers ended up getting that grant from Laidlaw Foundation for $35,000 to develop her idea for Amadeusz. She couldn’t believe it, she said. They paid her in increments of $5,000 and set up a system where Chambers could use that money for the resources she needed, and provide Laidlaw with the receipts. 

“Now that I can reflect back in retrospect, I felt that Laidlaw Foundation played a really, really, really life-changing role, because they navigated and negotiated with what someone else would say, ‘no, it’s our policy,’ ‘we can’t do that’ or ‘you need a trustee, we can’t do that,’” said Chambers. In bending the rules set by the culture, policies, and legislation at the time, the foundation was able to support Chambers’s idea, “because they believed.” 

Interested in learning about funding non-qualified donees, and hearing more from Davis-Wesseling, Ibrahim and Chambers? Register for the Philanthropic Foundations of Canada conference here — starting tomorrow.