On July 10, 2017, Ontario’s Regulatory Registry published for comment a draft amendment to the Approved Acts of Executors and Trustees, a regulation under the Charities Accounting Act (Ontario) (the “Act”). The amendment would permit directors of incorporated charities to receive remuneration in certain circumstances without obtaining a court order. Currently, charities operating in Ontario that wish to pay their directors are required to obtain an order under s. 13 of the Act. Consent to the order must first be obtained from the Office of the Public Guardian and Trustee (the “PGT”).
As a result of the 1987 Re Public Trustee and Toronto Humane Society decision, directors of incorporated charities operating in Ontario are considered to be fiduciaries of the charity and, therefore, subject to direction under the Act as though they were charitable trustees. Accordingly, directors are prohibited from receiving remuneration for any services provided to the charity (whether as a director or otherwise) without court approval. This prohibition includes services that would have been provided at fair market value.
Under the proposed regulation, certain payments to a director of a charity, or a person connected to that director, will be authorized. The regulation defines when a person is considered to be “connected” to a director. A “connected” person includes certain family members, the director’s employer, any share-capital corporation of which the director controls over 5% of the votes (or 20% for a non-share capital corporation), and any partnership in which the director (or a corporation controlled by the director) is a partner. While the regulation alleviates the burden and expense of obtaining a court order by making it permissible to remunerate directors, it also requires certain procedures to be followed to safeguard the public’s interest in preventing the mismanagement of charitable funds.
In order for a payment to be permitted, the directors who authorize the payment must ensure it is made with a view to the best interests of the incorporated charity. The payment must be for an amount that is reasonable for the goods, services or facilities provided. The directors must ensure the payment will not result in the debts and liabilities of the charity exceeding its property value or rendering it insolvent. In addition, the following procedural steps must be met:
- every director must agree in writing to a maximum amount that can be paid and, where the person providing the goods, services or facilities is a person connected to a director, that person must also agree to the maximum amount;
- the payments must not exceed the maximum amount;
- every director, other than the one providing the goods, services or facilities or who is connected to the person providing such goods, services or facilities, must agree in writing that he or she is satisfied that the payment is made in accordance with the regulation;
- the directors must consider any guidance issued by the PGT;
- the director who is being remunerated or is connected to the person receiving remuneration must not attend any board meeting where the matter is discussed nor vote on the matter;
- there must be at least four voting directors on the board eligible to authorize the payment;
- no more than 20% of the directors may be receiving remuneration under the regulation; and
- the charity must report the remuneration payments in its financial statements.
While the regulation makes it easier to pay directors for services, goods or facilities provided to a charity, certain types of payments are not authorized under the regulation. Court approval will still be required for any payment by a charity to a director that constitutes remuneration for:
- services provided as a director or as an employee of the charity;
- fundraising services; or
- the purchase or sale of real property.
The draft amendment can be found on the Service Ontario website here.
Comments on the draft amendment must be submitted to the PGT by August 29, 2017.
If you have any questions as to whether your charity can pay its directors, or how to obtain a s. 13 order under the current rules, please contact one of our Social Impact lawyers.