Authored by Philip A.S. Milley, Associate Director, Legal Affairs
NOTICE: Since the publication of this article certain legislative changes were implemented. The July 2018 edition of the CCCC Bulletin, accessible here, discusses the implemented changes.
On July 10, 2017, the Government of Ontario announced that it is considering loosening the rules regarding the remuneration of charity directors. If the government’s proposal is implemented, incorporated charities could be permitted to pay directors in certain circumstances, without having to obtain an order (the “proposed changes”).
The Public Guardian and Trustee takes the position that a charity director must act gratuitously, meaning that a director cannot be paid for acting in the capacity of a director, or for providing services to the charity in any other capacity, unless authorized by court order pursuant to section 13 of the Charities Accounting Act (the “Act”) and the court is satisfied that it is in the best interest of the charity to do so.
The proposed regulation, under the Act, seeks to balance a charity’s need to enter into advantageous transactions with the need to protect the public’s interest, in protecting from the misuse of charitable property. The proposed changes would permit charities to pay their directors and those related to them for goods, services, or facilities provided to the charity. For example, the proposal would allow, subject to various conditions, a charity to rent facilities owned by a director. However, certain prohibitions would remain, such as the prohibition of a director being compensated for services as an employee.
The proposal outlines eight conditions that are to be required before a payment to a director or their relative may occur. The conditions are:
- The payment must be made with a view to the charity’s best interests;
- The payment must be in an amount that is reasonable for the goods, services or facilities provided;
- The payment must not result in the amount of the debts and liabilities of the charity exceeding the value of the charity or render the corporation insolvent;
- Before the board may authorize the payment:
- Every director must agree in writing to the maximum amount that can be paid for the goods, services or facilities;
- Every director, other than the director receiving the payment, must agree in writing that they are satisfied that the conditions set out in the regulation have been met, and
- The board must consider any guidance issued by the Public Guardian and Trustee;
- There must be at least five directors on the board;
- Neither the director who will receive the payment, nor any person related to them, can take part in the deliberations, attend any part of a board meeting during which the decision to authorize the payment is discussed or participate in any vote of the board on the issue;
- The number of directors receiving remuneration, or who are connected to persons receiving remuneration, cannot be greater than 20% of the total number of directors in any fiscal year; and
- The payment to the director must be reported at the annual general meeting and must be noted on the charity’s financial statements.
Consultation submissions regarding the draft proposal must be submitted by August 29, 2017. Submission may be made online at the link located here or sent to the Public Guardian and Trustee at the following address:
Deputy Director and Deputy Public Guardian and Trustee
Office of the Public Guardian and Trustee
595 Bay St., Suite 800
Toronto, ON M5G 2M6
Noteworthy is provided for general information purposes and does not constitute legal or professional advice. Every organization’s circumstances are unique. Before acting on the basis of information contained in this blog, readers should consult with a qualified lawyer for advice specific to their situation.