A not-for-profit organization in Canada that wishes to incorporate can choose to incorporate provincially/territorially (under the legislation of a specific province or territory), or federally (under Canadian federal legislation). There are reasons to choose one form over another and we will discuss those benefits in a later article. In this article, we will focus on those not-for-profit organizations which have chosen to incorporate under the Canadian federal legislation.
The Canadian Not-For-Profit Corporations Act is actually relatively new legislation that came into effect on October 17, 2011 and replaced Part II of the Canada Corporations Act. Under this legislation, a person or a corporate body may apply for the federal incorporation of a not-for-profit organization. Once incorporated, the entity is known as a Canadian Not-For-Profit Corporation. The Canadian Not-For-Profit Corporations Act provides various rules and regulations for the structure, governance, and powers of a Canadian Not-For-Profit Corporation. In addition, a Canadian Not-For-Profit Corporation may have Articles of Incorporation and By-laws that set out any additional rules and regulations for structure, governance, and powers which are not already set out in the Canadian Not-For-Profit Corporations Act.
Once incorporated, a Canadian Not-For-Profit Corporation is required to file Annual Returns each year with Corporations Canada together with any other information required by Corporations Canada (such as a change of Directors, Articles, Bylaws, or Registered Office). Failure to comply with the filing requirements could result in involuntary dissolution of the organization (i.e. the organization ceases to exist legally).
Was your Organization Incorporated before the Canadian Not-For-Profit Corporations Act came into effect on October 17, 2011?
Any federally incorporated not-for-profit organization that was incorporated under Part II of the Canada Corporations Act on or before October 16, 2011 must take action to transition to the Canadian Not-For-Profit Corporations Act.
The deadline to transition to the new Canadian Not-For-Profit Corporations Act is October 17, 2014 and failure to do so will result in the involuntary dissolution of the organization. This should not be left to the last minute as the transition process involves the preparation of new governing documents, including its purposes, and applying for the transition with Corporations Canada. As the October 17, 2014 deadline draws closer, it is also reasonable to assume that Corporations Canada will be dealing with a large volume of transition applications by those organizations that do wait until the last minute. This increased volume will likely delay the amount of time it takes for your organization’s transition application to be processed. This becomes a larger problem if there is a problem with your organization’s application and it gets rejected. Proper legal advice should be sought as soon as possible to ensure that your transition application is handled in a correct and timely manner.
Registered Charities
For those federally incorporated organizations which are also registered charities, it is important to note that preparing new documents to transition to the Canadian Not-For-Profit Corporations Act may have a detrimental effect on the organization’s charitable status if the governing documents are not drafted appropriately (i.e. with the charitable registration requirements in mind). In addition, if an organization does not transition to the new Canadian Not-For-Profit Corporations Act by the October 17, 2014 deadline and gets dissolved involuntarily, it may be possible to have the organization itself revived; however, the Charities Directorate of the Canada Revenue Agency may automatically revoke the organization’s charitable status resulting in the organization owing a revocation tax, which is set at the value of the remaining property after allowable deductions and transfers (likely resulting in an amount of tax due that is equal to or near 100% of the organization’s assets at the time that its charitable status is revoked).
Any federally incorporated not-for-profit organization that is required to transition to the new Canadian Not-For-Profit Corporations Act should seek legal advice to ensure that the transition process is started as soon as possible and, in the case of registered charities, to ensure that the transition does not put its charitable registration at risk.
If you need to transition to the new Canadian Not-For-Profit Corporations Act on or before October 17, 2014, you should contact me without delay.
Tom Fellhauer heads up the Tax Group at Pushor Mitchell LLP. You can contact Tom at 250-869-1165 or [email protected]
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