We have been advised that fraudulent emails and faxes regarding unclaimed insurance money have been received by members of the public from a source claiming to be Aird & Berlis LLP. These communications are not from Aird & Berlis LLP. Disregard them and do not engage with the sender in any way. Please report the attempted fraud by contacting the Canadian Anti-Fraud Centre.

Back to all publications
Aug 2, 2017

Ontario Proposes to Ease Rule Against Payments to Charity Directors

By Jeremy D. Burke

On July 10, 2017, the Ontario government published a draft amendment to a regulation under the Ontario Charities Accounting Act (the “Act”). The proposed amendment would modify the Ontario common law rule that currently prohibits a charity’s directors from receiving any compensation from the charity, for directorial or other services, without a court order.

Current rule

In Ontario, cases involving unethical charity operators have led the courts to impose a rule requiring that a charity obtain a court order authorizing any payment (other than expense reimbursement) to a director, or a person related to the director. Such order can be sought in co-operation with the Public Guardian and Trustee (Ontario Ministry of the Attorney General) under an abbreviated process pursuant to section 13 of the Act (a “Section 13 Order”).

This rule has forced charities to weigh the benefits of a proposed transaction with a director against the cost of obtaining a court order or the risk of non-compliance.

Proposed rule changes

The proposed amendment to the Act’s regulation would allow a charity to compensate a director, or persons connected to a director, for provision of goods, services or facilities, if certain requirements are satisfied.

In place of a Section 13 Order, the proposed amendment would obligate a charity to implement various safeguards aimed at ensuring that the proposed transaction is in the best interests of the charity. In the consultation draft of the proposed amendment, a charity seeking to compensate a director or person related to a director would have to meet the following conditions:

  • the transaction must be made with a view to the charity’s best interests;
  • the amount of the payment must be reasonable for the goods, services or facilities provided and cannot exceed the amount expressly authorized by the board; and
  • the payment must not cause the charity’s liabilities to exceed the value of its charitable property, or cause the charity to become insolvent.

Procedural requirements

The consultation draft of the proposed amendment also lays out a number of conditions that a charity’s board must satisfy to authorize the payment, including:

  • the charity must have at least four directors on its board in addition to the director who is to receive payment or who is connected to the person receiving payment;
  • the director (or person connected to the director) to receive the payment cannot participate in or attend deliberations regarding the proposed transaction, nor vote on it;
  • the directors (including the director receiving the payment) must unanimously agree on the maximum amount of the payment;
  • the directors (excluding the director receiving the payment) must unanimously agree that the regulation’s conditions have been satisfied; and
  • the board must consider any guidance issued by the Public Guardian and Trustee.

Information regarding any payments to directors or persons connected to directors must be noted in the charity’s financial statements.

There is also a limit to the charity’s opportunity to enter into transactions with directors. In each financial year of the charitable corporation, no more than 20% of the charity’s directors may receive any such payment, or be connected to persons receiving such a payment.

Scope of persons that are "connected to a director"

The proposed amendment identifies the categories of persons who would be deemed to be a “person connected to a director” such that they are caught by the rule:

  1. A spouse, child, parent, grandparent or sibling of the director.
  2. The employer of the director or of a person described in paragraph 1.
  3. A corporation with share capital, if the director or a person described in paragraph 1 beneficially owns, controls or has direction over more than 5% of the corporation’s shares.
  4. A corporation without share capital, if the director or a person described in paragraph 1 beneficially owns, controls or has direction over more than 20% of the voting membership interests of the corporation.
  5. Subject to certain exceptions, a corporation with or without share capital for which the director or a person described in paragraph 1 acts as director or officer.
  6. A partnership in which the director or a person described in paragraph 1 is a partner, or in which a corporation described in paragraph 3, 4 or 5 is a partner.
  7. A partner in a partnership described in paragraph 6.

Types of payments that cannot be authorized by the board

Certain types of payments cannot be authorized by the procedures set forth in the proposed amendment, and would remain prohibited without a Section 13 Order. These would include payments for services provided as a director or an employee of the charity, payments for fundraising services and payments in connection with the purchase or sale of real estate.

Public comments on the draft amendment can be submitted until August 29, 2017 to the Office of the Public Guardian and Trustee.

If your charity has any questions surrounding the current regime, or the proposed amendment, please contact Jeremy Burke or any other member of the Aird & Berlis Charity & Not-for-Profit Law Group.

*This article was co-written with Lynn Tay, a 2017 summer student at Aird & Berlis LLP

Areas of Expertise

Related Publications

Publications Article
CSA Highlights Need for Financial Interest Disclosure in Cannabis-Related M&A Transactions and Expresses Corporate Governance Concerns of Cannabis Issuers By Jeffrey K. Merk, Sherri M. Altshuler and Russell J. Sanders Nov 19, 2019 On November 12, 2019, staff of the securities regulatory authorities in Ontario, British Columbia, Quebec, New Brunswick, Saskatchewan, Manitoba and Nova Scotia issued CSA Multilateral Staff Notice 51-359 – Corporate Governance Related Disclosure Expectations for Reporting Issuers in the Cannabis...
Publications Article
Increases Are Coming to the Monetary Jurisdictions of the Small Claims Court and for Rule 76 Simplified Procedure Actions Effective January 1, 2020 By Mark van Zandvoort and Stephanie D’Amico Oct 28, 2019 A recent announcement by the Ontario Ministry of Attorney General has advised that, effective January 1, 2020, a party will be permitted to claim up to $35,000 in Ontario Small Claims Court proceedings, and up to $200,000 in Rule 76 Simplified Procedure proceedings in the Ontario Superior Court o...
Publications Article
What U.K. Employers Should Know About Canadian Termination, Dismissal Law By Fiona Brown and Michael F. Horvat Oct 24, 2019 Canadian employment law shares many similarities with U.K. employment law by virtue of Canada having inherited its common law system from the U.K. Nevertheless, it is important for U.K. employers seeking to expand operations into Canada to understand how Canadian employment legislation operates w...