Understanding Restricted Funds And Grant Reporting 2025 — How To Track, Manage, And Report Donor Funds Correctly

Restricted funds and grant compliance are top audit priorities for CRA and Revenu Québec in 2025. Charities and non-profits must demonstrate that restricted donations are used only for their designated purposes and that grant funds are tracked separately. Failure to comply can result in repayment obligations or loss of funding. Mackisen CPA Auditors Montreal builds customized accounting systems and financial reports to ensure your restricted funds are fully compliant, transparent, and defensible.

Legal and Regulatory Framework

Income Tax Act (Canada) Section 149.1: Requires charities to use funds strictly for charitable purposes and maintain detailed accounting records.
Charities Accounting Act (Ontario) Section 6: Mandates segregation of restricted donations from general operating funds.
CRA Guidance CG-016: Outlines acceptable practices for restricted fund tracking and donor accountability.
Taxation Act (Quebec): Mirrors federal requirements, obliging Quebec charities to disclose restricted and unrestricted fund balances in annual filings.
Grant Agreements: Typically include federal, provincial, or private funding terms under which expenditures must match approved budgets.

Key Court Decisions

Toronto Humane Society v. Canada (2020): Confirmed that charities must maintain fund segregation and accurate disbursement records.
Vancouver Foundation v. The Queen (2018): Established CRA’s right to demand documentation for every restricted expenditure.
Les Ailes de l’Espoir v. Quebec (2021): Required Quebec charities to refund unused restricted grants when not spent per contract terms.

Why CRA and Revenu Québec Audit Restricted Funds

Auditors verify that restricted donations are not diverted for general operations. CRA also reviews whether grant reports match funding agreements and T3010 filings. Common triggers include commingled bank accounts, missing project budgets, and late grant reporting. Mackisen creates restricted fund ledgers and schedules to satisfy both donor and regulator requirements.

Mackisen’s Strategy

1. Fund Segregation — Create separate accounts or cost centers for each restricted fund.

2. Grant Reporting Compliance — Align internal reporting schedules with grantor deadlines.

3. Budget Tracking — Reconcile grant expenses to approved funding categories.

4. Audit Trail Creation — Maintain complete records of donor receipts, invoices, and disbursements.

5. Board Oversight — Provide monthly restricted fund summaries for transparency and governance.

Real Client Experience

A Quebec social services charity was flagged by CRA for mixing restricted and operating funds. Mackisen restructured its accounts, restored donor confidence, and avoided repayment of $120,000 in grants. A Montreal education foundation facing late-reporting penalties regained compliance after Mackisen implemented automated reporting linked to grant agreements.

Common Questions

Can I use restricted funds for administration? Only if expressly allowed by the donor or funding agreement.
How long must records be kept? At least seven years after project completion.
What if grant conditions change mid-year? Amendments must be documented and approved by the grantor.

Why Mackisen

Mackisen CPA Auditors Montreal are experts in restricted fund management and grant compliance. Our CPAs establish fund accounting systems, design compliant reports, and protect organizations from audit risk. Call Mackisen CPA Auditors Montreal today for your 2025 Grant Reporting Consultation. The first meeting is free and ensures your donors and regulators trust your stewardship.