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One of the most commonly overlooked mistakes in completing the Form t2050 Charity Application is appointing an ineligible individual to the Applicant’s Board of Directors.

The Income Tax Act states that the CRA may refuse to register a charity that has applied for registration as a registered charity if an ineligible individual is a director or manages the charity, whether directly or indirectly.

What is an ineligible individual?

Subsection 149.1 (1) of the Act defines an "ineligible individual," as an individual who, at any time, has been convicted of a relevant criminal offence.

"Relevant criminal offence" means:

a. relates to financial dishonesty, including tax evasion, theft and fraud, or

b. in respect of a charity, is relevant to the operation of the charity.

It is thus critical that before setting up your Board of Directors, that you ascertain that all those in positions of authority in the Charity be squeaky clean of any crimes which could jeopardize your application.

If you are unsure about whether a specific crime disqualifies one of your directors, give us a call at 416-900-0379 or email us at charity.advice@biglaw.ca and we will gladly advise.

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Q: What are the fundamental requirements that determine if an organization may apply for status as a Charity?

A:  To take advantage of special tax privileges given charities under the Income Tax Act — the most significant one being the ability to issue tax receipts to donors — charities must first register with the CRA. To do so, an applicant organization must:

• Devote its resources to charitable purposes and activities;

• The organization's purposes must be exclusively and legally charitable;

• It must be established for the benefit of the public or a sufficient segment of the public.

An organization's purposes are considered legally charitable only if they fall within one of the four categories of charity set out in the 19th century decision, Commissioners for Special Purposes of Income Tax v. Pemsel.

Pemsel categories include:

• Purposes for the relief of poverty;

• Purposes for the advancement of education;

• Purposes for the advancement of religion;

• Other purposes beneficial to the community in a way the law regards as charitable.

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Q. We are a charity that has been registered for several years... Half our board of directors are new (less than a year) and three have been here for several years. However, none of us have experience on a board, and have been following the lead of the founder / Executive Director. As a board, we feel it is prudent to have some sort of legal counsel to ensure all of our books, policies and procedures are in compliance. 

How can you help us?

7 WAYS HOW WE CAN HELP DIRECTORS OF NOT-FOR-PROFITS AND CHARITIES:

1. Review your Minute Book.

2. Ensure that your corporation has all of its correct and complete letters patent and supplementary letters patent, including order microfiche from the Ontario government and arrange for it to be scanned or printed if there are documents missing or to ensure a complete record.

3. Ensure Membership structure meets organizational objectives and legislative requirements, including multiple membership Classes, Admission of new members, and Removal of Members.

4. Review your current by-law. Do you need amendments to your by-laws?

5. Ensure that the records that the Ontario government has in their database are up-to-date.

6. File form 1s, to update information about the corporation, including registered head office address, addresses and names of directors and officers, which is required to be filed within 10 days of change.

7. Work with the Not-for-Profit to create an appropriate governance framework, including the degree to which members make certain changes vs. directors, and the role of officers.

For an excellent overview by Corporations Canada of Directors Rights and Responsibilities, please click on the following link: 

https://www.ic.gc.ca/eic/site/cd-dgc.nsf/eng/cs05004.html#toc-08

Do you need help with your Not-for-Profit or Charity? Please feel free to reach out to us by phone, 416.900.0379 or email at charity.advice@biglaw.ca

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Q: Are there any tips for keeping the minutes of my Charity Organization in order?

A: Here are a few points to keep in mind regarding keeping the minutes of your charity organization in order.

• Make sure that any motions made to change policies are recorded in the board minutes. These should ultimately be publicized as appropriate and the new policies should be integrated into the policy manual.
• Ideally, keep at least two years’ worth of minutes in your office in a set, safe location.
• If you do not have enough room in your office to keep these records, then after every annual general meeting, remove the oldest minutes to make room for the next year’s AGM minutes.  Before removing them, note any policy decisions in the Policies and Practices records in your office.
• Keep minutes together with copies of any reports and additional information that was filed at the meeting.
• Even if your charity records the minutes digitally, it is always recommended that you keep a hard copy in your office in a set, safe location.
• Minutes do not need to be kept for all committee meetings. It is only necessary for key committees, such as fundraising and finance committees. Keep formal minutes and make formal reports to the board on key decisions!

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Q: What are the guidelines for selecting the board members of my charity organization? Are there any laws regarding who is eligible to fill such a position?

A: A charity generally requires a board of at least 3 individuals who are not related to each other, who will not receive any form of payment for their services to the charity (there are exceptions to these rules, which are beyond the scope of this Q&A).

• If the group will be incorporating, these individuals will be the first directors.
• If the organization will become an unincorporated charitable trust, then the board members are called trustees and not directors.

It is generally considered to be an honor to be a board member of a charity. But along with such a privilege come important responsibilities and potential liabilities! A board member should bear in mind that:

• Board members, officers, and members of the organization do NOT beneficially own the charity.
• Individuals who fill the above mentioned positions do not have any right of ownership to any particular asset of the charity.
• The charity may not be operated for pecuniary gain of its members, board, members or officers.

The following is a sample of qualities that would disqualify an individual from eligibility for the position of director, trustee, officer or any similar position of a charity:

• A person with an unpardoned criminal record for an offence related to financial dishonesty.
• A person who has controlled or managed a registered charity, in any capacity, during which time the person engaged in conduct which seriously breached the requirements of registration, resulting in the revocation of the charity’s registration within the preceding five years.
• A person who was a promoter of a tax shelter, for which a charity’s registration was revoked within the previous five years.

Keep in mind that such offences are not required to have been committed in Canada in order to disqualify an individual from eligibility. Every charity is required to search for any evidence that would disqualify potential candidates for said positions.

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Q: What is the role of the Secretary in regards to the minutes of my Non-For-Profit organizations meetings?

A: The Secretary is responsible for taking the minutes. The Secretary's responsibilities lie in three areas:

• What must be done before the meeting;
• during the meeting;
• and following the meeting.

Before the meeting, the Secretary must:

• Determine the method by which the minutes will be recorded. Written form remains the most common method. However, technology-reliant methods, such as the use of recording devices, are increasing in usage.

During the meeting, all members must be seen and heard by the Secretary in order to keep accurate records. The Secretary is responsible for:

• recording attendance.
• numbering agenda items. The minutes will identify the item number and the agenda should then be attached to the minutes and the two should be filed together.
• recording as much detail as possible. The amount of detail required to ensure due diligence is determined by the board.
• recording the names of the person who moved and seconded motions as determined by the organization's policy.
• recording votes and lists of votes. This reduces member liability.
• clearly stating and describing all motions and decisions. The Secretary should also record if the decisions were unanimous.
• possibly maintaining a motion sheet, if motions were particularly lengthy in nature.

After the meeting, the Secretary should:

• prepare a final draft of the minutes as soon as possible after the meeting.
• ensure that the draft is reviewed for accuracy by the Chairperson.
• distribute the final version within one week after the meeting.
• remind members of their commitments.

At subsequent meetings, the Secretary will also present the minutes for approval. Corrections can be made, but the content must not be debated. A motion to accept the minutes must receive a majority vote. The Secretary should add a statement at this point to the current meeting that the minutes of the past meeting were approved or approved as corrected. 

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We would like to start a Scholarship Fund and provide charity receipts to our donors.

Q. What will the CRA be looking for in our charity  application, and what should we include in the application to ensure that our application is approved and the charity is registered? 

The provision of scholarships, bursaries, awards and prizes, whether inside or outside of Canada, is generally charitable under the charitable head of “advancement of education”.

In determining whether the provision of scholarships or bursaries is charitable at law, the Charities Directorate (Charities arm of the CRA) will review:

A.    whether the charity maintains sufficient direction and control over the provision of the awards; and

B.     the element of “Public Benefit”.

The Public Benefit requirement is satisfied by the process used to select the recipients of the scholarships.

·        Many scholarships are awarded on the basis of

·        scholastic achievement;

·        financial need;

·        on the basis of excellence in extracurricular activities.

These criteria are generally acceptable and will be registered as a charity.

To make sure it meets the necessary element of public benefit, an applicant must provide all the following information:

-          the eligibility and selection criteria it uses in distributing such prizes;

-          the composition of the selection committee;

-          how and where the award is advertised;

-          the amounts it will award;

-          how it will distribute the funds.

In most cases, a scholarship fund set up to help any of the following will not qualify as charitable:

-          a named individual or individuals;

-          employees of a company;

-          relatives;

-          members of a private club, a trade union, or a co-operative.

A scholarship can be limited to groups, such as:

·        students of a school

·        persons of the same gender; or

·        people of specific ethnic backgrounds.

On the other hand, awarding scholarships based on criteria such as membership in an organization (other than an educational institution) would typically not be acceptable.

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Q: What basic items should be recorded in the minutes of my Non-For-Profit organization’s meeting?

A: Here is a checklist of basic items that should be recorded in the minutes. The order in which they appear will vary based on the needs of your Not-for-Profit.

·         Date, time, and place of the meeting;

·         Name of the person in the chair, and any changes in the chair;

·         Number of members present and their names;

·         A statement that at the outset of the meeting the quorum was present and a statement, based on fact, that the quorum was maintained throughout the meeting;

·         All rulings made by the chair and the nature and result of an appeals that arise from those rulings;

·         All motions properly moved, including the name of the mover and seconder (if required);

·         A list of all reports and documents introduced during the meeting (copies of these should all be attached to the official copy of the minutes);

·         A summary of significant points raised during discussions regarding the motions (note: this does NOT imply a verbatim record of speeches);

·         Any commitments made by any people present at the meeting;

·         The time of adjournment; and

·         The signature of the meeting Secretary. (Even if unsigned, minutes are considered evidence in common law.)

Alert: To fulfill the legal requirements for a charity or a not-for-profit, minutes for your meetings must be clearly recorded and maintained as long as the organization is registered.  

If the charity is revoked, minutes must be retained for two years after the revocation date.

These are important documents to maintain, because:

• they are the records of the proceedings of any meeting;
• minutes capture the actions of the organization while fulfilling its legal duties;
• minutes demonstrate how decisions were made and who committed to acting upon them;
• they assist new members to understand the organization;
• minutes can be used as an evaluation tool of the work of the organization.

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Q: What content should be included in my charity’s AGM?

A: A Not-for-Profit corporation is expected to create and report an AGM every year. It will:

• Inform members of the organization’s accomplishments and future plans;
• State its financial standing.

Alert: Be sure to have a list of your members handy at the meeting. You must be certain that you have reached a quorum!

Q. How do I record this information in the minutes?

There are two types of information included in minutes:

• Information received at the meeting – tells what happened for the duration of the meeting

For example: “The financial statements for the previous six months were received from the Treasurer and a report given. The financial statements received are attached as Schedule 1 to these minutes.”

• Decisions made at the meeting – tells the resolutions that were made based on the information

For example: “Moved by Maria and seconded by Kareem THAT:” or “It was resolved THAT:”

The written form of the mover and second for each decision is determined by the bylaws or rules of order adopted by the meeting. The main point here is that the resolution records the decision taken by the meeting, usually after a vote on a motion.

Alert: These formalities regarding resolutions pertain specifically to the AGM. For more informal meeting that do not relate to information in the bylaws, there is no need to worry about resolutions.

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Q: What are the responsibilities of the directors of federal my non-for-profit corporation?

A: The board of directors manages and supervises the activities of the corporation and are accountable to the members.

Q. How many Directors must a federal Not-for-Profit elect?

A not-for-profit corporation must specify either:

• A fixed number of directors, OR
• A minimum and maximum number of directors.

In this second scenario, the precise number of directors to be elected can be established from time to time by ordinary resolution of the members.

• Generally a corporation must have at least one director;
• A soliciting corporation must have a minimum of 3 directors. Two of these must not be officers or employees of the corporation or its affiliates.

Q: How are the directors of a federal non-for-profit corporation elected?

A: The directors of a non-for-profit corporation are elected by a majority vote cast at an annual meeting of the members.

• A director’s term may not exceed four years;
• It is not permissible to have directors who hold office as of right, without the need to be elected by the members;
• The director must consent to fill this position. If the elected director is present at the meeting when the election takes place, s/he is deemed to have consented to serve as director, unless s/he refuses;
• If the elected director is not present at the meeting when the vote takes place, s/he must either, a) consent to his/her election in writing before that meeting or within 10 days after the meeting, OR b) act as a director after the election.

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If your charity will operate through an intermediary, i.e., will hire a third party to execute its objectives (this is most common when the charity is operating outside of Canada), you should ensure that your charity registration application satisfies the following Charities Directorate recommendations.

The CRA recommends adopting the following types of measures to direct and control the use of a charity's resources:

•         create a written agreement and implement its terms and provisions

•         communicate a clear, complete, and detailed description of the activity to the intermediary;

•         monitor and supervise the activity;

•         provide clear, complete, and detailed instructions to the intermediary on an ongoing basis;

•         arrange for the intermediary to keep the charity's funds separate from its own, and to keep separate books and records.

In order for such arrangements to be considered acceptable devotion of the charity's resources to its "own charitable activities” the following criteria should be met:

•         the charity has obtained reasonable assurance before entering into agreements with individuals or other organizations that they are able to deliver the services required by the charity (by virtue of their reputation, expertise, years of experience, etc.);

•         all expenditures will further the Canadian charity's formal purposes and constitutes charitable activities that the Canadian charity carries on itself;

•         an adequate written agreement is in place;

•         the charity provides periodic, specific instructions to individuals or organizations

as and when appropriate;

•         the charity regularly monitors the progress of the project or program and can provide satisfactory evidence of this to the  Charity;

•         where appropriate, the charity makes periodic payments on the basis of this monitoring and maintains the right to discontinue payments at any time if it is not satisfied.

A charity must record all steps taken to exercise direction and control as part of its books and records, to allow the CRA to verify that the charity's funds have been spent on its activities. Therefore, it is important that the intermediary, in conducting the charitable activities on behalf of the Organization, shall do the following:

•        keep copies of any letters, documentations related to activities, which include applicant's file #, application for assistance and documentation attached to it;

•       report and letter that recommend an application for assistance;

•       record the detail of each transaction including the date, name and amount provided to each recipient;

•        keep copies invoices, receipts and proof of payment;

•        provide the Organization complete records of all transactions.

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Q. What types of follow-up questions can we expect from the CRA when applying to register a church as a charity? 

A. When it comes to registering a charity under the  "advancement of religion" head, you will have to show:

(a) the promotion of spiritual teaching of a religious body,

(b) the maintenance of the doctrines on which it rests,

 (c) the observances that serve to promote and manifest it. and

 (d) there must be an element of theistic worship.

In other words, to advance religion means to promote it, spread its message among mankind, and to take positive steps to sustain and increase belief in that particular religion.

However, not everything done in the name of religion advances religion within the meaning of case law. There must be a clear and material connection between an organization's activities or programs and promotion of the religion's key attributes.

As noted previously, probably the most critical part of the application to register a charity, Form t2050, is Question 11a. When completing this form, one must ensure to include very detailed information about the organization's activities, including the following:

I. General

• the Statement of Articles of Faith espoused by the Applicant;
• the requirements for membership;
• the number of members at the place of worship and their relationship, if any, by blood, marriage or adoption;
• the names of pastors/ministers and their ministerial credentials;
• the frequency of services or meetings at the place of worship and the location at which they are held; and
• sample copies of church bulletins, flyers, as well as other materials used topromote the church.

II. Religious studies:

• Frequency; 
• Time;
• Location; 
• Materials used; 
• Topics of discussion. 

More on this topic can be found at the link below, at the CRA’s website:

https://www.canada.ca/en/revenue-agency/services/charities-giving/charities/policies-guidance/guidance-019-draft-purposes-charitable-registration.html#toc10

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When the analysts at the CRA examine an applicant's statement of activities, it looks for a detailed description of its programs as they relate to each of the purposes set out in its governing document. The onus is on an applicant to provide a detailed description of each of its activities,  whether ongoing or planned, and to clearly demonstrate that these activities further its stated charitable purposes.

When describing an applicant' s activities, it is insufficient to simply express its aspirations. An applicant must provide detailed and credible plans for its proposed activities.

When completing Q.11a of the Form t2050 Application to register a charity, the CRA requires detailed descriptions of the applicant’s activities to demonstrate that they are exclusively charitable.

These descriptions should address the following:

•         what is the nature of each activity that the Applicant will be engaged in;

•         where and how each activity will be carried out;

•         who will conduct each activity, as well as a description of their relationship to the Applicant (employee, volunteer or other);

•         what expenditures are involved in carrying out each activity:

•         who are beneficiaries of each activity, and how are they selected, including any eligibility criteria (for example, income levels, employment situation, age, disability, etc.);

•         how the Applicant will maintain direction and control over the use of its resources if its activities are to be carried out by someone other than the Applicant's employees or volunteers;

•         what is the length of time for the Applicant to carry out each activity; indefinitely , or for a specific duration; and

•         what processes will be in place to ensure that an activity is achieving the desired outcome.

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We were recently asked the following:

Q. "We are an organization that builds home for the poor. We would like to apply to the CRA for charity registration. What are the likely issues the CRA might have with our application?" 

A: The Charities Directorate would likely find the following issues:

Public vs. Private benefit

Charitable purposes must possess certain essential characteristics, particularly “public benefit,” as opposed to “private benefit.”

“Public benefit” means that there is a direct and tangible benefit to the community as a whole, or a significant section of it. A “private benefit” on the other hand is one directed towards the interests of a narrowly defined group, rather than the public as a whole.

Accordingly, an organization that provides benefits to members of a particular group will not be registered as a charity.

[For more information on the CRA’s policy for Public vs. Private benefit, see CPS-024, Meeting the Public Benefit Test, available here: https://www.canada.ca/en/revenue-agency/services/charities-giving/charities/policies-guidance/policy-statement-024-guidelines-registering-a-charity-meeting-public-benefit-test.html ]

When an organization improves a house owned by an impoverished individual, the CRA may be concerned that the home may be used for purposes other than relieving poverty, i.e., operating a for-profit venture or business.

In other words, when an organization which builds, repairs and improves homes and shelters for the poverty-stricken applies for charity status, the Charities Directorate will want the applicant to demonstrate and prove that the property will only be used for charitable purposes.

If you have any questions about this post or any other charity law related matter, please don't hesitate to contact us at charity.advice@biglaw.ca or complete and submit the form on the right-hand side of this page.  

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An improperly organized minute book can be fatal to your organization.

We were recently approached by a Not-for-Profit that has been operating for over 35 years. We reviewed the corporate minute book and found that the Directors were improperly voted in, and in fact had no legal control over their million dollar empire.

Unfortunately, this is not an isolated event. We see this time and again. Not-for-Profits are usually run and managed by generous people who volunteer their time and skills to run organizations that benefit society. But without proper legal structure and well maintained records, they run the risk of losing control of an organization in which they've invested so much.

The deficiencies are sometimes in the bylaws, but most often in the lack of proper initial organizational documents. 

Call or email us for a minute book review. 

It's affordable, and could save you from litigation or even complete loss of an organization you've invested so much in.