When a not-for-profit corporation reaches the end of its journey, there is an important legal process to bring that chapter to a purposeful close. This process has legal and tax consequences that, if mishandled, can expose the corporation (and sometimes its directors) to unnecessary risk, delays, and unexpected financial obligations.

This article covers the practical and legal roadmap for dissolving a federal not-for-profit corporation in Canada, highlighting what decisions must be made, what pitfalls to avoid, and how to ensure the process is handled efficiently and properly from start to finish.

Dissolving a federal not for profit corporation (“Corporation”)

Under the Canada Not-for-Profit Corporations Act (S.C. 2009, c. 23) (the “Act”), this process is known as “voluntary dissolution”. There can be various reasons for the dissolution, whether it’s the end of a specific project, or the Corporation no longer wishes to conduct operations.

If the Corporation is also a registered charity, there will be additional legal and tax considerations that must be addressed alongside corporate dissolution steps under the Act. In this respect, there will be an additional process of revoking charitable registration under the Income Tax Act (Canada).

The dissolution of the Corporation will come into effect on the date Corporations Canada issues a Certificate of Dissolution. However, before that result can be achieved, several steps will need to be considered and undertaken in order to properly bring about the effective termination of the Corporation.

As a starting point, the process to dissolve the Corporation will depend on whether the Corporation has assets or liabilities.

When the Corporation has no assets or liabilities

If the Corporation has no assets or liabilities, the process for dissolution will be quite straightforward.

Member approval of dissolution

If the Corporation has members, those members can approve the dissolution of the Corporation by passing a special resolution in accordance with the Act. It is important to note that if the Corporation has more than one class or group of members, each class or group of members must pass the special resolution to authorize the dissolution. This is required even if there are classes or groups of members that are not otherwise entitled to vote, because dissolution of the Corporation is considered a fundamental change and requires all members to authorize the dissolution pursuant to the Act.

If the Corporation has no members, the directors of the Corporation can pass a resolution to authorize the dissolution of the Corporation.

When the Corporation has assets and liabilities

In the event the Corporation has assets and liabilities, the Corporation can only be dissolved once those assets have been distributed, and the corporate liabilities have been properly discharged.

In the process of distributing assets and discharging liabilities, the Corporation will need to consider matters including, but not limited to:

  • identifying the Corporation’s assets and liabilities, and determining whether there are any regulatory or other legislative provisions, including the Corporation’s bylaws, that dictate how those assets and liabilities are to be discharged;
  • passing appropriate corporate resolutions authorizing the dissolution, including obtaining all proper corporate authorizations from members, if applicable;
  • ensuring employees are properly discharged and given proper notice in accordance with their contracts, and ensuring that such notice complies with any employment standards legislation having jurisdiction over the employees;
  • terminating any contracts, leases, or licenses (whether verbal or written);
  • implementing the disposition of the assets and discharging the liabilities; and
  • preparing the corporate documentation for the dissolution, including the preparation of Articles of Dissolution.

Two possible approaches to dissolution when assets exist

When the Corporation is considering distributing assets and discharging liabilities, there are two main routes the Corporation can take in the process of dissolving. The route a Corporation decides to take may be dictated by factors such as financial constraints, lack of staffing, or other corporate considerations or restructuring that may be driving the process. Each situation will be unique. Briefly, those routes are as follows:

1. Take steps to liquidate the Corporation before officially dissolving

If the members (or directors, when applicable) of the Corporation proceed to pass a special resolution authorizing the directors to distribute any assets and discharge any liabilities of the Corporation, the assets and liabilities would be distributed and discharged before applying for a Certificate of Dissolution. This means that procedurally, by the time the Corporation submits its formal application to dissolve, all steps in relation to the dissolution have already been undertaken.

2. Commence dissolution before liquidating the Corporation

If the Corporation intends to stop carrying on its activities and operations immediately while it is in the process of dissolving, it can apply for a Certificate of Intent to Dissolve. If a Corporation chooses this route, members must still authorize the dissolution of the Corporation by special resolution.

The Certificate of Intent to Dissolve is a form of public notice that the Corporation obtains which evidences that the Corporation is no longer carrying on its activities or operations except for the process of its dissolution.

From a timing perspective, once Corporations Canada issues the Certificate of Intent to Dissolve, the Corporation will then be required to cease its activities or operations, except for the dissolution steps. In addition, if a Corporation determines to proceed on this basis, it will also need to:

a. notify its creditors of its intent to dissolve;

b. ensure that the notice is provided in each jurisdiction in Canada the Corporation was carrying on activities or operations at the time it sent its Statement of Intent to Dissolve to Corporations Canada;

c. take all necessary steps required for the liquidation of assets in accordance with the Act and discharge all the liabilities; and

d. distribute the Corporation’s remaining assets amongst its members in accordance with the Corporation’s Articles and the Act.

Once the dissolution process is complete, an application can then be made for a Certificate of Dissolution from Corporations Canada.

Revocation of charitable status: 7 key steps

If the Corporation is also a registered charity, there will be additional legal and tax considerations that must be taken into account in prior to the dissolution of the Corporation. A charity that does not take the appropriate steps to have its charitable registration voluntarily revoked will be subject to a revocation tax, which, generally speaking, will be equal to the total of all assets less all liabilities.

  1. Prior to dissolving under the Act, the Corporation will need to request that the Canada Revenue Agency (“CRA”) voluntarily revoke its charitable registration. The request is initiated by the Corporation through its CRA My Business Account or written correspondence.
  2. The CRA will then send a Notice of Intention to Revoke a Charity’s Registration (“form T2051A”), with the proposed date of revocation. This sets the formal process of revocation into motion, as the date of the form T2051A is the beginning of the charity’s one-year winding up period. If the Corporation has elected to proceed with a liquidation process, it may be preferable for the Corporation to have initiated this process prior to, or in conjunction with, the request for voluntary revocation being submitted to condense the timeline.
  3. During the winding up period, the charity should pay all outstanding liabilities and dispose of any remaining assets. A charity can eliminate revocation tax by transferring its remaining assets (after it discharges outstanding liabilities) to one or more “eligible donees” under the Income Tax Act.
  4. The Corporation will be required to complete a Tax Return Where Registration of a Charity is Revoked (“form T2046”) and send it to the CRA no later than one year after the date CRA issues the T2051A, or the letter that served as the notice of intention to revoke.
  5. The Corporation must also submit Registered Charity Information Returns (“form T3010”), for the period between the date of its last T3010 and the start of the winding up period, as well as a T3010 for the same period as the form T2046.
  6. The Corporation’s charitable registration will be officially revoked when a notice is published in the Canada Gazette. Included with such notice will be the name of the Corporation and the reason for revocation being published in the List of charities, with letters about the revocation and charitable status being available to the public.
  7. After the form T2046 has been processed, CRA will issue a final Notice of Assessment confirming the amount of revocation tax owing. If the charity’s assets were disposed of appropriately, the charity should not owe any revocation tax. We typically recommend waiting for the Notice of Assessment before filing Articles of Dissolution and formally completing the dissolution of the Corporation.

Concluding thoughts

The steps required to dissolve a not-for-profit Corporation vary depending on its financial position and charitable status. While the process may appear administrative, it carries significant legal and tax implications that require careful planning and coordination.

Our Charity & Not-For-Profit Group regularly guides organizations through this process to ensure compliance, efficiency, and peace of mind. If your Corporation is considering dissolution or revocation of charitable status, we would be pleased to support you through every stage.