CRA Provides Guidance to Charities Continuing Under the New Federal Act

By Joel Secter

Registered charities that are federally incorporated under Part II of the Canada Corporations Act ("CCA") have until October 17, 2014 to continue under the new Canada Not-for-profit Corporations Act ("NFP Act"). According to Corporations Canada, corporations that have not completed the transition by this date will be considered inactive and will be dissolved. Dissolution could have serious consequences for registered charities including revocation and possibly forfeiture of corporate assets. For this reason, all registered charities are strongly advised to make continuing under the new federal law a priority sooner rather than later.

By way of background, all registered charities must be legally established in order to meet the requirements for registration with the Canada Revenue Agency ("CRA"). This may be accomplished through incorporation or by using a constitution or trust document. Whereas letters patent were issued to non-share corporations under Part II of the CCA, a Certificate of Incorporation will be issued to them under the NFP Act. One notable difference between the two is that the former include objects clauses whereas the latter do not. Simply put, objects clauses define what a non-share corporation is permitted by the Crown to do. Historically, the CRA used them to evaluate whether an organization is considered to be charitable at common law. If, for example, the objects clauses of an organization allowed it to do something that the law did not recognize as charitable, the organization would not be registered.

Under the NFP Act, instead of drafting objects clauses, organizations are required to describe their purposes when completing the Form 4001 - Articles of Incorporation or Form 4031 - Articles of Continuance. Considering the CRA uses the words "objects" and "purposes" interchangeably, the Charities Directorate will likely look at the statement of the purpose of the corporation to determine whether it meets the requirements for registration as a charity. Registered charities that have no intention of modifying their objects clauses when continuing under the NFP Act should duplicate the objects clauses found in their letters patent onto Form 4031 verbatim.

Organizations that plan on taking advantage of continuance to make changes to their corporate makeup, including changes to their objects clauses, are recommended to get their new purposes pre-approved by the Charities Directorate prior to submitting their Articles of Continuance. The potential risk of not seeking preapproval is that the CRA may not accept them as charitable and later revoke the corporation's registered charity status.

Corporations Canada is also recommending that non-share corporations that are (or plan on becoming) registered charities include the following in their Articles:

• A statement on the restrictions of the activities that the corporation may carry on, if any;
• A statement regarding the distribution of property remaining on liquidation;
• A statement that the corporation will be operated on a non-profit basis; and
• A statement that directors may not be remunerated merely for acting as directors.

There are no big surprises here as these statements resemble the provisions federally incorporated registered charities already have in their governing documents.

Once existing corporations complete the transition to the NFP Act, Corporations Canada will issue a Certificate of Continuance to the corporation. Registered charities will need to file a copy with the Charities Directorate along with the following documents:

• A copy of the Articles of Continuance
• A list of current directors (if amended)
• A copy of the current by-laws (if amended)
• A statement of current activities (if the purposes changed and have not been previously reviewed by the Charities Directorate).

The Charities Directorate has created a transition checklist which is available online and should accompany the abovementioned materials upon submission.

In the coming year, we will watch closely for the Charities Directorate to provide additional information, particularly with respect to the statement of the purpose of the corporation, the requirements for the number of directors and the model statements that must be included in a corporation's Articles.

Joel Secter is a lawyer with Drache Aptowitzer LLP in Ottawa. He is a graduate of the University of Ottawa and has previous experience in dealing with tax and charity matters. He can be reached at jsecter@drache.ca.