This article was co-authored by articling student Amber LeBlanc.
 

Introduction

Boards of trade are a distinct form of non-share capital corporation in Canada. Many will know them best as “chambers of commerce,” the name under which many boards of trade operate. Their purpose is to foster business and commerce within a particular community or region, and they provide a forum for those with an interest in the economic and civic well-being of that area. They are an important part of the business community throughout Canada, but are uniquely a type of non-profit at law.

While some boards of trade may be incorporated under federal or provincial not-for-profit legislation, this article focuses on boards of trade incorporated under the federal Boards of Trade Act (the “BOTA”).[1]

Tax treatment under the Income Tax Act

Paragraph 149(1)(e) of the Income Tax Act[2] (the “ITA”) exempts agricultural organizations, boards of trade, and chambers of commerce from tax, provided that no part of their income is payable to, or otherwise available for the personal benefit of, any proprietor, member, or shareholder.

For income reporting purposes, boards of trade are treated in the same way as non-profit organizations described in paragraph 149(1)(l) of the ITA. Under subsection 149(12), an organization that is exempt from tax under paragraph 149(1)(e) or (l) must file an information return within six months after the end of each fiscal period if:

  1. the taxable dividends, interest, rentals, and royalties it received or was entitled to receive in the period exceed $10,000;
  2. its total assets exceeded $200,000 at the end of its preceding fiscal period; or
  3. it was required to file an information return for a preceding fiscal period.

This return is filed with the Canada Revenue Agency (“CRA”) on Form T1044, Non-Profit Organization Information Return. It is similar in concept to the annual income tax return filed by other Canadian taxpayers, in that it is filed with the CRA for each fiscal period. It differs in content, however: rather than calculating income and tax payable, it reports information about the organization, its activities, the amounts it received, its assets and liabilities, and the remuneration and other amounts it paid.

History

Boards of trade have been exempt from tax since Canada’s first federal income tax statute was enacted in 1917. Although reforms to Canada’s tax system and to the treatment of tax-exempt entities have been proposed since that time, the tax exemption for boards of trade has not been substantively changed since 1917 when the ITA came into force. It has been a mainstay as a tax-exempt entity in Canada.

The Boards of Trade Act

The BOTA was first enacted in 1874 and is now consolidated as R.S.C. 1985, c. B-6; it governs how a board of trade is formed, governed, and reports as a corporation, while its tax status is governed only by the ITA. As such, under the ITA, a board of trade is tax-exempt only if it meets the conditions in paragraph 149(1)(e) and must still file any information return required under subsection 149(12).

Formation

The BOTA provides for two types of board of trade.

  • Under Part I, not fewer than 30 persons who are merchants, traders, brokers, mechanics, manufacturers, managers of banks, or insurance agents, and who carry on business or reside in a district with a population of at least 2,500 (or 1,500 in British Columbia or Yukon), may associate together as a board of trade and appoint a secretary.[3]
  • Under Part II, not fewer than 30 persons who are directly or indirectly engaged or interested in trade, commerce, or the economic and social welfare of a district, whether or not they reside there, may associate together as a board of trade to promote and improve trade and commerce and the economic, civic and social welfare of the district.[4]

Part II therefore permits a broader base of founding members than Part I.

In either case, the incorporators must make a certificate setting out the name of the board of trade, its district, and the name of its secretary. The certificate is forwarded to the Minister of Industry for registration and, once it is registered, the board of trade becomes a body corporate.[5] A Part II board must also file a memorandum of agreement setting out its by-laws, discussed below, and has all of the powers of, and is subject to, Part I, except as varied by Part II.[6]]

Council

The council of a board of trade plays a role similar to that of a board of directors. Every board of trade must have a president, vice-president, and secretary who, together with at least eight other members, constitute the council.[7] Council members are elected by and from among the members at the first quarterly meeting held each year, in the manner prescribed by the by-laws, and hold office until their successors are elected the following year.[8] Five or more council members constitute a quorum.[9] Notably, the council cannot be given the power to enact or alter by-laws or to admit members; those powers rest with the members.[10]

Membership

Any person resident in the district who is or has been a merchant, broker, trader, mechanic, manufacturer, manager of a bank, or insurance agent is eligible to become a member, and other persons may become members if recommended by the council.[11] A candidate is proposed by a member at a general meeting and is admitted if the proposal is carried by two-thirds of the members present.[12] Membership fees, or subscriptions, are not fixed by the BOTA; they are set by the by-laws, and unpaid subscriptions are recoverable by the board of trade in an action.[13] A member may resign on 10 days’ written notice to the secretary, provided any outstanding liability to the board of trade is discharged.[14]

Meetings of members

The members must hold general quarterly meetings each year at a place within the district, on at least three days’ notice given by the secretary.[15] The first quarterly meeting of each year functions as the annual meeting, as it is at that meeting that the council is elected. If the election does not take place at that meeting, the board of trade is not dissolved; the election may be held at a later general meeting, and the existing council remains in office in the meantime.[16] The council, or a majority of its members, may also call a general meeting on one day’s notice.[17]

Annual summary

In addition to any information return required under subsection 149(12) of the ITA, every board of trade must, on or before June 1 of each year, file in duplicate with the federal Department of Industry a summary, prepared as of the preceding March 31, setting out its name, the manner and date of its incorporation, the date of its last general meeting of members, and the names and addresses of its council members. Each copy must be signed by the secretary.[18] A board of trade that fails to comply is liable on summary conviction to a fine of up to $20 for each day the failure continues, as is any council member who knowingly or wilfully authorizes or permits the failure.[19]

Importance of by-laws

The BOTA is a short statute, particularly when compared with modern not-for-profit corporate statutes such as the Canada Not-for-profit Corporations Act. As a result, many governance matters that those statutes address directly are left to the by-laws of a board of trade. Under Part I, the members may make by-laws providing for, among other things, the admission and subscriptions of members, the imposition of penalties, the expulsion or retirement of members, the management of the council, officers, and affairs of the board, the date and place of regular council meetings, and the powers of the council.[20]

Part II boards are subject to more prescriptive requirements. The memorandum of agreement filed on formation must set out by-laws addressing conditions of membership; the mode of holding meetings, voting rights and the procedure for making, repealing or amending by-laws; the appointment, removal, powers, and remuneration of directors, trustees, committee or officers; the audit of accounts and appointment of auditors; whether or how members may withdraw; and custody of the seal and certification of documents.[21]

By-laws are made by the members, not the council. Under Part I, by-laws are made by a majority of the members present at a general meeting, and a proposed by-law requires prior written notice, given by one member and seconded by another at a previous meeting and entered in the minutes.[22] The council is responsible for framing proposed by-laws and submitting them for adoption at a general meeting called for that purpose.[23] Once made, by-laws bind the members, officers, and employees of the board of trade and all other persons lawfully under its control.[24]

Amending by-laws can be cumbersome, particularly for Part II boards. The by-laws of a Part II board may be amended at a general meeting called for that purpose, but no amendment is in force or may be acted on until it has been approved by the Minister of Industry.[25] Part II boards should therefore allow time for ministerial approval and ensure that the required documents are submitted to Corporations Canada before relying on an amended by-law.

Status of boards of trade

Boards of trade governed by BOTA are a distinct form of non-share capital corporation. When incorporated under the BOTA, their formation, membership, meetings, council, and annual reporting to the Department of Industry are governed by a short statute that leaves much of their governance to their by-laws. Their tax status is governed separately by the ITA: paragraph 149(1)(e) exempts them from tax provided no part of their income is payable to, or otherwise available for the personal benefit of, any proprietor, member, or shareholder. A board of trade must therefore meet two sets of obligations, the BOTA annual summary and any information return required under subsection 149(12) of the ITA, and should keep its by-laws up to date and allow time for ministerial approval where a Part II board is amending them.

How we can help

If you are considering establishing a board of trade, or represent a board of trade that requires guidance on its reporting obligations, governance, or other matters, we can help. Our Tax-Exempt Entities Group advises not-for-profit organizations, including boards of trade, on a broad range of matters.


[1] R.S.C., 1985, c. B-6.

[2] R.S.C., 1985, c. 1 (5th Supp.).

[3] BOTA, s. 3(1).

[4] BOTA, s. 44(1).

[5] BOTA, ss. 5, 7, 8 and 44(2).

[6] BOTA, ss. 45 and 48.

[7] BOTA, s. 11.

[8] BOTA, s. 12.

[9] BOTA, s. 29.

[10] BOTA, s. 28(2).

[11] BOTA, ss. 20(1) and (4).

[12] BOTA, ss. 20(2) and (3).

[13] BOTA, ss. 22(a) and 25.

[14] BOTA, s. 21.

[15] BOTA, s. 17.

[16] BOTA, ss. 12 and 13.

[17] BOTA, s. 18.

[18] BOTA, ss. 42(1) to (3).

[19] BOTA, ss. 42(4) and (5).

[20] BOTA, s. 22.

[21] BOTA, s. 45.

[22] BOTA, ss. 22 and 24.

[23] BOTA, s. 31(1).

[24] BOTA, s. 23.

[25] BOTA, s. 46.