Canadian Charities and Qualifying Disbursements
Canadian charities have long worked with partners outside Canada. In 2022, changes to the Income Tax Act gave registered charities an additional option to send money abroad in addition to the “direction and control” mechanism. This new framework is known as qualifying disbursements.
Under this framework, the Canada Revenue Agency expects charities to understand and manage grant-related risks and to document how charitable funds are used. The level of analysis and oversight required depends on the nature of the grant and the context in which it takes place.
Risk Analysis
Under the qualifying disbursement framework, charities are expected to understand the risks associated with a proposed grant and to determine what safeguards are appropriate before funds are released. This requires more than a high-level review of a potential recipient.
A meaningful risk analysis looks at both the proposed activity and the context in which it will take place. This typically includes an assessment of:
the recipient organization’s governance, leadership, and operational capacity
its experience delivering similar activities
financial controls and reporting practices
the legal, regulatory, and banking environment in which it operates
broader social, political, or security conditions that could affect how funds are used
For many charities, especially those working in unfamiliar jurisdictions or higher-risk environments, this type of analysis falls outside typical in-house expertise. Evaluating factors such as political instability, local legal constraints, sanctions exposure, or limitations in financial infrastructure requires informed judgement and contextual understanding.
We conduct risk analyses that are structured, evidence-based, and proportionate to the grant in question. Our work does not aim to eliminate all risk — which is neither realistic nor expected — but to identify where risks exist, assess their significance, and clearly document how they are being addressed.
A well-documented risk analysis helps a charity:
make informed funding decisions
determine the appropriate level of oversight and control
demonstrate responsible stewardship of charitable resources
explain its reasoning if questions arise later
In practice, the risk analysis forms the foundation for how a grant is structured, monitored, and reviewed over time.
Grant Agreements and Oversight
A grant agreement structures a project so that there is assurance that the funds are being used to pursue the charitable project. Typically a written agreement sets out how funds may be used and what reporting or oversight is required.
Grant agreements often address:
the charitable purpose of the grant
how funds may be accessed and used
record-keeping and reporting expectations
how unspent or misused funds will be handled
steps to take if the project cannot proceed as planned
In higher-risk or more complex situations, additional safeguards may be appropriate. The aim is not to eliminate all risk, but to manage it proportionately and thoughtfully.
Due Diligence and Ongoing Review
Due diligence is how a charity puts its risk analysis into practice. Higher-risk grants generally require more oversight, while lower-risk grants may require less, provided the charity can explain its approach.
In our work, due diligence is not a checklist exercise. It is a deliberate process that helps charities understand who they are funding, how funds will flow, and how use of funds will be monitored over the life of a grant.
Depending on the nature of the grant, due diligence may include:
reviewing the recipient’s purpose, programs, and track record
assessing governance structures, staffing, and decision-making authority
identifying associated individuals or organizations that may pose legal, financial, or reputational risk
examining how funds will be received, held, and spent
confirming what documentation and reporting will be available to support oversight
Many charities choose to standardize aspects of their due diligence process so that grants are assessed consistently and efficiently across programs. At the same time, the framework must remain flexible enough to respond to higher-risk or more complex situations.
We help charities design and apply due diligence processes that:
reflect the level of risk involved
are practical to administer
align with donor and regulatory expectations
support clear documentation and decision-making
Where appropriate, we also support ongoing review during the life of a grant, including evaluation of progress reports and reassessment of risk if circumstances change.