When purposes need to be amended
The Ontario Not-for-Profit Corporations Act, 2010 (“ONCA”) was proclaimed into law on October 19, 2021. The ONCA replaces Part III of the Ontario Corporations Act and significantly modernizes the legislation that governs non-share capital corporations incorporated in the Province of Ontario. The ONCA provides for a three-year transition period, which ends on October 19, 2024. Subject to limited exceptions, corporations governed by the ONCA should bring their governing documents into compliance with the ONCA by this date.
Many charities that are organized as Ontario non-share capital corporations have already started the transition process to become compliant under the ONCA. As part of this process, these charitable corporations must review their governing documents to determine the scope of any required amendments. For many charitable corporations, this is the first time that their current leadership and directors have read the actual text of the corporation’s Letters Patent and Supplementary Letters Patent, as applicable. Sometimes the results have been surprising for these organizations.
For instance, some charitable corporations have discovered that the purposes listed in their Letters Patent or Supplementary Letters Patent do not reflect the charity’s actual activities. Others have discovered that their purposes need to be amended to reflect social changes regarding the use of certain terminology. While others have discovered smaller discrepancies in their purposes relating to the names of listed charities that have changed since Letters Patent were filed years prior. To amend their purposes as part of the ONCA transition process, charitable corporations are required to file Articles of Amendment.
Application of the “After Acquired” clause
The Articles of Amendment (Form 5271E) asks two questions for charitable corporations that are amending their purposes. The first asks about whether the charitable corporation is a charity or will be operating as a charity. If the answer to this first question is yes, then the second question asks the charitable corporation if it has obtained written consent from the Office of the Public Guardian and Trustee of Ontario (“PGT”) to not include an “After Acquired” clause. The reference to the “After Acquired” clause comes from the requirements outlined in the ONCA’s Names and Filings regulation at sections 24 and 27.
This regulation outlines that charities that change their purposes but do not seek prior consent from the PGT must include the “After Acquired” clause in their Articles of Amendment. The “After Acquired” clause states that all of the charity’s assets acquired prior to the effective date – and some property obtained by will, deed, or other instrument that was made before that effective date – can only be used for those of the charity’s activities related to their initial charitable purposes. The charity can only use the assets that it acquires after the effective date in the Articles of Amendment for their new charitable purposes.
When an Ontario charitable corporation has not sought written consent from the PGT to change its purposes before it files its Articles of Amendment, then it must include the “After Acquired” clause in its amended purposes. Where the “After Acquired” clause is included, the effective date of the Articles of Amendment (i.e., the date indicated on the Certificate of Amendment issued by the Ministry of Public and Business Service Delivery) (the “Effective Date”) becomes a critical date for that charitable corporation. This is because, as of the Effective Date, all of the assets held by the corporation immediately prior to the Effective Date, as well any assets which it acquires subsequent to the Effective Date by will, deed, or other instrument that was made before the Effective Date (collectively, the “Assets”) must be used by the charitable corporation only to further its original purposes. To be clear, it cannot use these Assets to further any new purposes that may be set out in the Articles of Amendment. It may only apply in furtherance of its new purposes those assets that it acquires after the Effective Date. Depending on the value and nature of the charitable corporation’s Assets, the application of the “After Acquired” clause may place a significant, additional administrative burden on the charity to keep track of which assets it uses in furtherance of which activity.
However, if a charitable corporation seeks the prior written consent of the PGT to its new purposes, then it may not have to include the “After Acquired” clause in its purposes and will very likely be able to use all of its assets (including those acquired before the Effective Date) to further its new purposes.
PGT’s guidance on the “After Acquired” clause
The PGT provides its comments regarding the application of the “After Acquired” clause in the Not-for-Profit Incorporator’s Handbook (the “Handbook”). The PGT does not require charitable corporations to seek its consent using a specified format and the Handbook does not provide any details regarding the process for obtaining written consents from the PGT exempting charitable corporations from use of the “After Acquired”. The Government of Ontario’s Guide to the Not-for-Profit Corporations Act, 2010 is similarly silent.
Updating CRA
According to the Income Tax Act (Canada) (“ITA”), in order for an organization to obtain and maintain registration as a charity it must be constituted and operated for purposes that are exclusively charitable according to Canadian law and it must conduct activities that further these stated purposes. A charity’s purposes must be included in their constating documents (i.e., Letters Patent, Supplementary Letters Patent, or Articles of Amendment). This means that charitable corporations governed by the ONCA that have discovered that the purposes listed in their current Letters Patent or Supplementary Letters Patent do not capture the scope of the their activities must amend their purposes in order to comply with their obligations under the ITA.
Ontario charities that amend their purposes by filing Articles of Amendment are also required to file their amending documents with the Canada Revenue Agency (“CRA”) once processed by the Ministry of Public and Business Service Delivery.
Conclusion
Ontario charities governed by the ONCA must ensure that they comply with the special considerations housed in the ONCA’s regulations when amending their purposes. They must also ensure that they obtain the PGT’s written consent to exempt them from including the “After Acquired” clause in their Articles of Amendment where it is prudent to do so. Further, all charitable organizations that amend their purposes in their governing documents must make the appropriate submissions to CRA to comply with their tax compliance obligations.
Miller Thomson’s Social Impact Group would be pleased to assist your charitable organization to choose and implement the best approach for your charity to best navigate these processes.
