Category: Not-for-Profit

One of the greatest benefits of a not-for-profit organization being categorized as a registered charity is its ability to issue official donation receipts.  Potential donors are more inclined to donate because they are able to claim the donated amount as a credit on their personal income tax return thus increasing the opportunity of these organizations in soliciting funds.

This benefit however comes with administrative time and responsibility to ensure that the official receipts issued are complete and accurate.  There are many rules and guidelines that the Canada Revenue Agency (CRA) has with respect to donation receipting that must be followed in addition to the specifics of what has to be included on the receipt itself. 

The starting point is determining if the donation qualifies as a gift eligible to be receipted as an official charitable donation.  A gift is the voluntary transfer of property without consideration.  In other words, it must be freely given, with no advantage received by the donor and consist of property.  As a result of this definition, CRA specifically excludes donation receipts for the gift of services.  If a supplier of a service wants to donate their time, skill, or expertise and get a donation credit for it they must issue an invoice to the charity for the service provided, be paid by the charity and then donate funds back to the organization.  Without this payment and contribution exchange, no donation receipt should be provided.

After confirming that the gift qualifies the next determination is the value of the gift.  This may be straightforward for most cash donations but what about non-cash gifts?  The value is determined based on the fair market value of the property or goods however making this determination could be as easy as doing a search to determine what the product or good would sell for, or may have to involve other professionals to provide an appraisal. 

Finally, the last step is considering if there was any advantage provided to the donor and the value of that advantage.  This step is often needed for fundraising events such as dinners or golf tournaments.  For example, if a charity charges $250 to attend their annual golf tournament, which includes a round of golf, dinner, and prize, the golfer is obviously getting something for the money paid.  If the value of the golf, dinner, and prize is $200 then the eligible gift would be $50 being the amount that is in excess of the value that the golfer received.   

If you need assistance in determining whether the benefits of donation receipting outweigh the administrative time and responsibility for your business, or have additional questions about CRA’s guidelines related to donation receipting, one of our Not-for-Profit Professionals would be happy to assist.

UPDATE: The end of the three-year transition period is coming in October 2024, after which all Ontario not-for-profit corporations are expected to conform with the Ontario Not-for-Profit Corporations Act (ONCA) as discussed below. Another area this applies is with regards to the location of board meetings. Electronic meetings are allowed (unless by-laws or articles do not allow), however meetings cannot be held over e-mail. The technology used must allow everyone attending the meeting to reasonably participate and communicate with each other.

If your organization was incorporated prior to October 19, 2021, the by-laws or articles may not be in compliance with ONCA. Governing documents need to conform with ONCA by October 2024, after which they are deemed amended to comply.

Please contact your DJB advisor if you require any further information or explanation.

There have been a number of changes in recent years to modernize the laws governing corporations without share capital. These corporations were previously governed by the Corporations Acts in the various jurisdictions, but the laws and regulations created for business and for-profit enterprises were not effective at times for the not-for-profit sector. In 2011, the new Canada Not-for-Profit Corporations Act (CNCA) came into force to govern the not-for-profit corporations incorporated federally. Ontario created a similar Act, the Ontario Not-for-Profit Corporations Act (ONCA) that received Royal Assent in 2010 and was finally brought into force on October 19, 2021. There is a three-year transition period during which all existing not-for-profit corporations registered in Ontario have to make any necessary changes to their incorporation and other documents to bring them into conformity with ONCA.

There are a number of various legal changes addressed in the new legislation, but we wanted to focus on the section on Financial Statements and Review. A corporation must prepare financial statements each year which comply with the requirements of the Not-for-Profit Act. The financial statements must be prepared in accordance with the Canadian Generally Accepted Accounting Principles (GAAP) as set out in the CPA Canada Handbook.

There are new guidelines introduced in both the CNCA and the ONCA on the level of public accounting assurance required. We have summarized these below in a chart and included some important definitions.

The ONCA classifies not-for-profit corporations into two categories – public benefit corporations and non-public benefit corporations. A corporation is considered to be a public benefit corporation when it is a charitable corporation or when it has received more than $10,000 in revenue from public sources in a single financial year. Public sources include gifts or donations from people who are not members, directors, officers or employees, grants from all levels of government and funds from another corporation that has also received income from public sources. A non-public benefit corporation is a corporation that has received no public funds or less than $10,000 in public funds in each of its previous three fiscal years. The CNCA has the same requirements and classifies these as soliciting and non-soliciting corporations.

The differentiation is important as the government wants to ensure that organizations receiving public funds are sufficiently transparent and accountable for that income.

Private foundations may be considered a non-public benefit corporation, depending on their revenue sources.

As a reminder, all corporations governed by the ONCA and CNCA must send a summary of their annual financial statements or a copy of a document reproducing the required financial information (such as an annual report) to the members not less than 21 days or a prescribed number of days, before the day on which the annual meeting of members is held, or the day on which a resolution in writing is signed by the members to all members who request a copy.

A soliciting corporation incorporated federally must provide its annual financial statements to Corporations Canada not less than 21 days before the annual general meeting of members or without delay in the event that the corporation’s members have signed a resolution approving the statements, instead of holding a meeting. The date must also not be later than six months after the corporation’s preceding financial year.

Incorporated Federally

Type of Corporation	Gross Annual Revenue per Financial Year	Appointment of Public Accountant by Members	Financial Review Required
Soliciting	$50,000 and less	Must appoint a public accountant by ordinary resolution unless members waive appointment by annual unanimous resolution	Public accountant must conduct a review engagement; but members can pass an ordinary resolution to require an audit instead. If no public Accountant is appointed, then only a compilation is necessary.
Soliciting	$50,001 to $250,000	Must appoint a public accountant by ordinary resolution at each annual meeting	Public accountant must conduct an audit; but members can pass a special resolution to require a review engagement instead.
Soliciting	more than $250,000	Must appoint a public accountant by ordinary resolution at each annual meeting	Public accountant must conduct an audit.
Non-Soliciting	$1,000,000 and less	Must appoint a public accountant by ordinary resolution unless members waive appointment by annual unanimous resolution	Public accountant must conduct a review engagement; but members can pass an ordinary resolution to require an audit instead. If no public Accountant is appointed, then only a compilation is necessary.
Non-Soliciting	more than $1,000,000	Must appoint a public accountant by ordinary resolution at each annual meeting	Public accountant must conduct an audit.

These rules were effective as of October 2011 when the CNCA came into force.

Incorporated in Ontario

Type of Corporation	Gross Annual Revenue per Financial Year	Appointment of Public Accountant by Members	Financial Review Required
Public benefit corporation	$100,000 and less	Must appoint a public accountant by ordinary resolution unless members waive appointment by an extraordinary resolution (at least 80% approval)	Public accountant must conduct a review or audit engagement. If no public accountant is appointed, then only a compilation is necessary.
Public benefit corporation	$100,001 to $500,000	Must appoint a public accountant by ordinary resolution at each annual meeting	Public accountant must conduct an audit; but members can pass an extraordinary resolution to require a review engagement instead.
Public benefit corporation	more than $500,000	Must appoint a public accountant by ordinary resolution at each annual meeting	Public accountant must conduct an audit.
Non-Public Benefit	$500,000 and less	Must appoint a public accountant by ordinary resolution unless members waive appointment by annual unanimous resolution	Public accountant must conduct an audit or review engagement. If no public accountant is appointed, then only a compilation is necessary.
Non-Public Benefit	more than $500,000	Must appoint a public accountant by ordinary resolution at each annual meeting	Public accountant must conduct an audit; but members can pass an extraordinary resolution to require a review engagement instead.

These rules were effective as of October 19, 2021, when the ONCA came into force.

These rules allow members in Ontario corporations with $100,000 and less in annual revenue to pass an extraordinary resolution (80% approval) to waive both the audit and review engagement requirements.

Before a Board of Directors decides to take advantage of these new rules allowing the organization to be exempt from an audit (presumably to reduce annual professional fees), it is important to remember that an independent, external review of management’s financial reporting is an effective tool to fulfill a Board member’s governance responsibilities. We would also caution against moving away from an audit if you anticipate your organization’s revenues to exceed the minimum thresholds that require an audit in the near future. The costs of transitioning to and from an audit in a short period of time generally exceed the cost savings from moving away from an audit.

If you require any further information or explanation with regard to recent changes for your organization’s external financial reporting requirements, please contact your DJB advisor.

In January 2023, Canada Revenue Agency increased the required disbursement quota for charities from 3.5% to 5.0% on the portion of property over $1 million.  Many charities however, do not know how the value of this property for the determination of the quota is calculated or how they meet the disbursement target.

As part of the annual Registered Charity Information Return, there is a question on the amount of property that the organization owns that is not used directly for charitable activities or administration.  This could include excess cash or investments on hand or other capital property such as a building that is not used by the charity.

If this amount is more than $100,000 for charitable organizations (or $25,000 for public or private foundations) then you must calculate and enter the amount. Rather than take the amount at a specific date, it is instead determined based on the average over the prior 24 months.

Once this average value of property not used in charitable activities is computed, the next step is calculating the disbursement quota.  It is determined at 3.5% of the value less than $1 million and 5% for any amount exceeding $1 million.  For example, an average value of $1.5 million will result in a disbursement quota of $60,000.

To meet the disbursement quota, the organization must have total expenditures on charitable activities and gifts to qualified donees in the year more than the quota or be offside and have a shortfall.

If however, a shortfall exists the charity can draw on disbursement excesses from the previous five years to help meet the shortfall or if no excesses are available they have one year grace to create an excess the following year to cover the prior year shortfall.