Payments to directors and connected persons: Key info for Ontario charitable corporations

October 31, 2024 | Ugochukwu Mbamalu

Directors of ‘charitable corporations’ operating in Ontario are subject to strict requirements to act without personal benefit – meaning they cannot be paid for serving as directors or for other services provided to the corporation unless authorized by court order, or pursuant to Ontario Regulation 4/01 under the Charities Accounting Act (the “Regulation”). The Regulation eliminates the need for a court order for most payments to directors or ‘connected persons,’ for goods, services, and facilities (hereafter called “services”) that they provide to a charitable corporation, provided that specific conditions are met. This article summarizes the conditions that must be met before Ontario charitable corporations can authorize a payment to a director.

The Regulation applies to corporations deemed to be trustees under the Charities Accounting Act. Guidance[1] from the Ontario Public Guardian and Trustee (the “Guidance”) refers to such a corporate trustee as a “charitable corporation,” which it defines as any non-share capital (not-for-profit) corporation operating in Ontario that is a registered charity or has exclusively charitable purposes; the definition does not include trustees of charitable trusts or non-incorporated charitable organizations (charitable corporations will hereafter be referred to as “charities”).  “Connected persons” are defined under the Regulation and Guidance as including the family members of a director, the employer of a director or their family members, and certain corporations or partnerships in which the director or a family member is involved.

Conditions for payment authorization

To make payments to directors or connected persons, a charity must meet the following conditions outlined in the Regulation and supported by the Guidance:

  • Best interest of the charity: The board must believe that the arrangement is in the charity’s best interests. In determining this, the board should consider:
    • the director or connected person’s qualifications and experience in providing the services;
    • the likelihood of an adverse impact on the charity’s reputation, support or funding;
    • whether the charity can afford the payment without adverse effects on its operations; and
    • the benefit of engaging the director or connected person over an independent party.
  • Reasonable payment amount: The payment must be reasonable, based on factors such as:
    • the market price for the services, or comparable services;
    • the value of the services to the charity;
    • the quality of the services;
    • the reliability of the supplier; and
    • costs that may have been previously paid by the charity in obtaining the services.
  • Effect on solvency: The payment must not result in the amount of the charity’s debts and liabilities exceeding the value of its charitable property, or render the charity insolvent.
  • Agreed maximum amount: All directors of the charity and the connected person (where applicable) must agree in writing to a maximum payment amount. The final payment cannot exceed this amount unless the agreement is amended in compliance with the Regulation.
  • Board approval: Every director, other than the director providing the services, must agree in writing that the payment complies with the Regulation. The conflicted director cannot participate in discussions or vote on the matter.
  • Number of directors: The board must have at least four (4) voting directors, excluding the conflicted director. Also, the total number of persons receiving payments authorized under the Regulation cannot exceed 20% of the number of voting directors;
  • Disclosure: Payments must be disclosed to the charity’s members at the annual meeting and in the charity’s annual financial statements. The statements should include the director’s name and a description of the transaction, though the amount paid does not need to be specified.
  • Guidance from the PGT: The charity’s board must consider any guidance on payments issued by the PGT and posted on the Government of Ontario’s website.

Simplified requirements for certain corporations

When payments are made to a corporation without share capital or to a for-profit corporation wholly owned by the charity, and the payment does not benefit the director who is connected to the charity, it is only necessary that the payment meet the following requirements:

  • cannot be for fundraising services or transactions related to the purchase or sale of real property;
  • must be in the charity’s best interests; and
  • must be reasonable for the services provided.

Concluding thoughts

In general, a registered charity cannot pay its directors, trustees, or like officials (e.g. officers) simply for occupying their positions. Provincial law dictates the specific circumstances under which a registered charity’s directors (or trustees) can receive compensation for providing services, and the law varies across provinces in Canada. Charities operating within or outside Ontario that are looking to compensate directors, like officials, or connected persons can ensure they do so within the allowable ambits of the law by reaching out to any member of our Social Impact Group for advice.


[1] Ontario Public Guardian and Trustee, “Payment to Directors and Connected Persons 2021” (August 1, 2021) https://www.publications.gov.on.ca/300777

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