BLG Annual Sector Update for Not-for-profit and Charity Law

Staff Post
By Shelley Cahill 

On November 8, I attended the Annual Sector Update offered by the Not for Profit and Charity Law Group of Borden Ladner Gervais (BLG) at their Scotia Plaza offices. Two key topics this year were the new Ontario Not-For-Profit Corporations Act (ONCA) and the 2012 federal budget.

ONCA was passed by the Ontario legislature in 2010, but is not yet in force. Proclamation is now expected on July 1, 2013. ONCA applies to all provincially-incorporated not-for-profits.

You may also have heard of the new federal act (the CNCA – Canadian Not-For-Profit Corporations Act), which is currently in force, and which applies only to federally-incorporated not-for-profits. There are differences between these two acts – and both of them require you to take certain actions to make sure that you’re in compliance with the new rules. A good first step would be to locate your Letters Patent, and make sure that you know how you’re incorporated and therefore which law applies to your organization.

ONCA will introduce significantly enhanced member rights. Your members have the power to elect your board of directors. Some not-for-profits have paying memberships who are accustomed to voting for your board at the annual general meeting. Other not-for-profits use “membership” as a fundraising category with no vote. This will change under ONCA: if you have “members,” they will have voting rights by law. You need to inform yourself about what this means for your organization.

This year’s federal budget beefed up the Charities Directorate’s ability to respond to fraudulent tax shelter schemes by significantly increasing the potential penalty amount assessed both to the promoters and to the charities that get behind these schemes. Although the Directorate continues to focus on education in response to misuse, it does not hesitate to de-register charities found to be in “serious non-compliance” with the rules. Becoming familiar with charity law is essential to good management.

My point-form notes, following, provide a quick summary of the important details.

Ontario Not-For-Profit Corporations Act, 2010

Timing Update – Proclamation Expected – July 1, 2013

Review of Enhanced Member Rights Under ONCA

  • Member Removal of Incumbent Directors (requires 50% of member votes to carry)
  • Member Proposals (any one member can make a proposal; but limits!)
  • Member Nomination of Directors (nomination requires support of 5% of membership)
  • Class Voting (i.e. Members in a Class can now vote as a class to veto any actions to eliminate their rights proposed by other classes)

Managing Risk

  • What can be done before July 1, 2013:
  • File Supplementary Letters Patent (SLP) to eliminate multiple classes of members (will not trigger class vote)
  • File SLP to opt out of class vote going forward on: Creating new classes of members with voting rights superior to existing classes; Effecting an exchange, reclassification or cancellation of membership of an existing class
  • What can be done after July 1, 2013:
  • Articles & By-Laws can manage and control processes to minimize surprises
  • Use concepts like record date to control membership campaigns

Implementation final date is expected to be October 17, 2014.

Budget 2012 Update

Tax shelter promoter penalty

  • Change from a penalty of 25% of purchase price to 25% of alleged donation

Tax shelter information return penalty

  • Failure to file annual tax shelter information return – change from $2500.00 to 25% of greater of promoter’s fee and alleged donation

Government is putting a lot of resources towards “Educate”, but CRA has indicated reassessment could lead to de-registration in cases of “serious non-compliance”.

  • CRA has agreed to stop issuing letters to audited organizations, as it had an adverse effect on NPOs, despite no formal sanctions.