This article was co-authored by summer student Shira Gerstein.

The Canada Not-for-profit Corporations Act (“CNCA”)[1] sets out the basic rules for director, officer, and member remuneration in federally incorporated non-share capital corporations. Across the country, provinces and territories have similar statutes for organizations that incorporate provincially. While many of these statutes share the same principles, they address director compensation in slightly different ways.  

This article focuses on how the Ontario Not-for-Profit Corporations Act, 2010 (“ONCA”)[2] and the CNCA address remuneration for directors of charities.[3] It then turns to Ontario’s Charities Accounting Act (“CAA”)[4] and its companion Approved Acts of Executors and Trustees[5] regulation, which assigns a role in charities management to the Office of the Public Trustee and Guardian (“PGT”).

Finally, the article examines the strict consequences that Canada Revenue Agency (“CRA”) and the Income Tax Act (“ITA”)[6] can impose on charities who run afoul of the rules regarding director compensation.

A brief look at the Canada and Ontario not-for-profit statutes

The CNCA outlines the roles and duties of the directors and officers of all non-share capital corporations. Remuneration is addressed quite simply: subject to the articles, by-laws, and any unanimous member agreement, directors may fix a reasonable remuneration for themselves, officers, and employees for their service in their role.[7] Directors can also provide reasonable remuneration to those same parties for any services they may perform for the organization in any other capacity.[8]

In contrast, ONCA sets no reasonableness standard. The directors are only restricted by the articles or by-laws of their organization when setting remuneration for those who take up the roles of director, officer, or employee within the non-share capital corporation.[9] Like the CNCA, the statute also allows those same individuals to be compensated for services they perform for the organization outside of their capacity in those roles.[10]

Despite what may appear to be clear legislation on the matter of setting directors’ remuneration, it is important to note that both the CNCA and ONCA apply broadly to all non-share capital corporations that are incorporated pursuant to these governing statutes. If your organization is specifically a charity, additional common law rules apply to directors. Charities in Ontario also must be aware of another statute that applies and is directly relevant to this discussion: the CAA.

Directors of charities cannot be compensated for acting as directors

A charity is a specific type of non-share capital corporation. In Canada, a charity must exist at law as either a corporation or a trust,[11] be established and operated for at least one specific charitable purpose, and receive charitable registration approval from CRA. An organization’s charitable purpose(s) must fall within one or more of the following common law categories, or “heads”: the relief of poverty, advancement of religion, advancement of education, or other purposes beneficial to the community.

Once registered, a charity can issue tax receipts for donations it receives from the public and is subject to stringent tax compliance rules and regulations to ensure that it continues to serve the public good in accordance with its stated charitable purpose(s) exclusively.

Accordingly, charities are expected to use their property (including their funds) only for their stated charitable purpose(s). Any other use of their property can only be authorized through an application to the Superior Court of Justice, or by applying to CRA in advance to amend their charitable purpose(s).[12]

Under common law, directors are treated as quasi-trustees for the purpose of managing charity property, and have a corresponding strict fiduciary duty to the charity. This fiduciary duty requires that directors act with diligence, loyalty, and in the best interests of the charity, as well as avoid conflicts of interest. Directors cannot accept a benefit from the charities they serve. Because of their fiduciary obligations to act in the charity’s best interest, it could be a conflict of interest or breach of trust for them to then compensate themselves.

In other words, directors cannot have a personal interest in the financial decisions of the charity.[13] The consequence of this is that unless granted by the court, a director of a charity cannot be remunerated for performing their duty as a director whatsoever.

Ontario provides for additional oversight of and guidance for director remuneration

The CAA brings charities that operate in Ontario under the oversight of the PGT. Generally, the office of the PGT is responsible for making decisions on behalf of those who lack the capacity in legal, personal, and financial matters.[14] With the CAA, Ontario takes that role further by giving the office a formal role in maintaining the integrity of charities and providing oversight of charities’ use of their charitable property.

The CAA brings all corporations incorporated with a religious, educational, charitable, or public purpose within its purview. This includes Canadian registered charities. Such a corporation is then deemed to be a trustee for the purposes of the CAA.[15] The CAA then empowers the PGT to audit charities and apply to the Superior Court of Justice to penalize or step in when a problem is discovered.[16]

Part of that auditing power is enforcing the rules around remuneration for directors. The Approved Acts of Executors and Trustees Regulation under the CAA makes a clear statement: directors cannot be paid simply for taking on the role of director.[17] This is not a blanket prohibition on paying individuals in director roles in all circumstances. Individuals who are directors of a charity can be compensated for work done outside of their capacity as a director.[18] If directors are taking time from their schedule to work on matters that a director would normally be occupied with, those services and that time would not be compensable.

But, for example, if a director also happened to be a plumber, their offering of plumbing services to the organization would be seen as a delivered service they could be paid for. However, the regulations detail a strict procedure to be followed for charities to be able to make such payments. It is a strenuous and inflexible corporate process that must be papered well, and charities must retain all records for any potential PGT or CRA audit.

This regulation is meant to remove the need to always apply to the Superior Court to compensate directors for services provided outside of their role.[19] Should a charity wish to give remuneration for another purpose, they are still able to apply to the court for permission. These applications to the court are effectively paper applications, so long as the PGT and any other relevant party fully consents to the remuneration and court application.[20]

In making these payments, charities will continue to be subject to other requirements regarding director compensation from non-share capital corporate statutes, namely, that such disbursements are still subject to the articles, by-laws, or any unanimous member agreement.

These payments to directors under the Approved Acts of Executors and Trustees Regulation are also subject to additional requirements. Such a payment must be made in the charity’s best interest, the payment amount must be reasonable, all directors must agree on the amount, and the directors must consider any guidance provided by the PGT on such payments.

Charities should reference the PGT’s published guidance titled “Payments to Director and Connected Persons” as a starting point.

British Columbia's information for societies

On the other side of the country, the province of British Columbia uses the word “societies” to refer to non-profit organizations and charities. The governing statute is the Societies Act[21] which sets out the rules for the remuneration and reimbursement of directors.[22] Societies in British Columbia are not entitled to remunerate directors simply for being a director, unless provided for in the bylaws.

Directors can still be compensated for services they provide to a society in another capacity (such as under a contract of employment), however, a majority of the directors of a society must not be remunerated by the society for being an employee or service provider.[23]

Like in Ontario, the statutory rules regarding societies apply more generally beyond just charities. As such, charities in British Columbia are also subject to the additional common law principles restricting compensation of directors. Unlike in Ontario, however, there is limited official guidance on compensation for charity directors specifically.

Canada's Income Tax Act can impose steep penalties for improper use of charity funds

The consequences of not understanding these rules around remuneration will have severe tax implications. The ITA levies penalties against charities for conferring undue benefits on a person out of the charity’s property. The charity itself could be subject to a penalty equal to 105% of the benefit amount, increased to 110% of the value of the benefit if the charity confers an undue benefit for a second time within a 5-year period.[24]

In addition, if a penalty is issued for conferring an undue benefit a second time within 5 years, a charity could lose its authority to issue donation receipts for one year.[25]

A further possible consequence is deregistration. The ITA allows the Minister to give notice that they will revoke a charity’s charitable status for not complying with the ITA’s requirements for charitable registration.[26] The ITA’s definition of charitable organization includes a requirement that no part of its income should be payable to the personal benefit of any proprietor, member, shareholder, trustee or settlor, and that all resources must be exclusively devoted to charitable activities.[27]

There are consequences for individual directors who wrongfully receive compensation as well. As mentioned above, charity directors have a strict fiduciary duty to the charities they serve, must avoid conflicts of interest, and cannot be remunerated for acting as directors. A director can be required to remit the entire payment they received back to the charity, no matter how much time has passed since such payment.

Additionally, where a charity is deregistered due to improper payments to directors, an involved director can become an “ineligible individual” under the ITA. While a full discussion of this status is beyond the scope of this article, ineligible individuals can compromise the charitable registration status or receipting privileges of future charities they work or serve on the board for.[28]

Conclusion

While Ontario provides more guidance on director compensation than any other jurisdiction in Canada, the remuneration of charity directors is a largely unsettled area of law in Canada, and especially for jurisdictions outside of Ontario, there is potential for charities to experience a lot of uncertainty surrounding director compensation. Consequently, all directors have a fiduciary duty to themselves and to their organizations to ensure that they are aware of the laws of their jurisdiction and that they take steps to ensure that they are discharging their obligations as a fiduciary.

The possible consequences for conferring an undue benefit on a director (or other persons for that matter) are dire, with both inability to issue donation receipts and losing registered charity status as ultimate possibilities. In addition, the reputational damage arising from these penalties is another consequence to keep in mind. Charities and their directors should be diligent to avoid running afoul of compensation rules. In some situations, it may be advisable to avoid even the possibility of a conflict of interest by simply hiring an arm’s-length party for a task a director could otherwise provide.

Ultimately, while Ontario provides the most detailed framework through the CAA and PGT guidance, other provinces like British Columbia offer far less direction, leaving charities to navigate uncertainty. At the federal level, the CRA and ITA impose strict compliance obligations and severe penalties, underscoring that director compensation is not simply a governance question but also a tax and regulatory risk. For that reason, charities must approach the issue with caution, ensuring that any remuneration decisions comply with both provincial statutes and federal requirements, while keeping fiduciary duties and public trust at the forefront.

We can help

If your organization has any concerns about director compensation, or when a charity’s director can receive remuneration for services provided outside of their capacity as a director, we can help. Gowling WLG's Tax-Exempt Entities group is ready to provide advice, or help craft director compensation policies to safeguard organizations.


[1] Canada Not-for-profit Corporations Act, SC 2009, c 23 [CNCA].

[2] Not-for-Profit Corporations Act, 2010, SO 2010, c 15 [ONCA].

[3] ONCA and CNCA broadly govern all sorts of non-share capital corporations in the relevant jurisdiction. There are many different types of organizations that may operate as non-share capital corporations, such as social clubs, community centres, and co-operatives. A charity is a specific type of non-share capital corporation. However, the designation of “charity” is much more restrictive than the designation of non-share capital corporation. A charity must be incorporated pursuant to a specific charitable purpose, must apply to the Canada Revenue Agency to receive registered charity status, and has ongoing reporting obligations.

[4] Charities Accounting Act, RSO 1990, c10 [CAA].

[5] Approved Acts of Executors and Trustees, O Reg 4/01.

[6] Income Tax Act, RSC 1985, c. 1 [ITA].

[7] CNCA, supra note 4, s 143(1).

[8] Ibid, s 143(2).

[9] ONCA, supra note 5, s 47(1).

[10] Ibid, s 47(2).

[11] Not all charities are corporations. Charities can also exist as trusts; however, this is beyond the scope of this article, and the vast majority of charities in Canada are corporations.

[12] CAA, supra note 7, s 13(1).

[13] Ontario, “Charities: directors and trustees” (4 October 2022).

[14] Public Guardian and Trustee, “The Role of the Office of the Public Guardian and Trustee” (26 January 2021).

[15] CAA, supra note 7, s 1(2).

[16] Ibid, s 3 & 4.

[17] Approved Acts of Executors and Trustees, supra note 8, s 2.1(4).

[18] Ibid, s 2.1(2).

[19] Ibid, s 1.

[20] CCA, supra note 7, s 13(1).

[21] Societies Act, SBC 2015, c 18.

[22] Ibid, s 46.

[23] Ibid, s 41.

[24] ITA, supra note 9, s 188.1(4)-(5).

[25] Ibid, s 188.2(1)(b).

[26] Ibid, s 168(1)(b).

[27] Ibid, s. 149.1(1).

[28] Government of Canada, “Ineligible individuals” (27 August 2014).