Bill 212, the Good Government Act, 2009 (“Bill 212”), introduced by the Attorney General of Ontario, passed third reading in Ontario’s Legislative Assembly on December 3, 2009. Once in force, Bill 212 will overcome limitations that for decades have plagued charities operating in Ontario.
Most of the changes result directly from the Ontario Bar Association Charity and Not-for-profit Section’s call for reform to this area. The amendments discussed in this article will come into force on Royal Assent.
Proposed repeal of Charitable Gifts Act allows business investment
The repeal of the Charitable Gifts Act (“CGA”) is one of Bill 212’s more noticeable changes. Originally passed in 1949, the CGA attempted to ensure that charitable organizations did not carry on businesses themselves or place their funds at risk in capital markets. It has long been criticized for unnecessarily limiting the ability of charities in Ontario to own an interest in a business.
Currently, where an Ontario charity owns more than a 10% interest in a business for longer than 7 years, the CGA requires it to dispose of that interest. A charity that owns more than a 50% interest in a business must file annual financial statements for the business and other financial information with the Ontario Public Guardian and Trustee (“PGT”) by March 31st of each year. By June 30th of each year, the PGT and the charity must jointly determine the amount of the profits to be distributed from the business.
What constitutes an “interest in a business” in the CGA is ill defined, with little assistance from either case law or commentary.
Federal law does the job
Those barriers have forced Ontario charities to use complicated organizational structures such as for-profit corporations, nonprofit organizations or business trusts as intermediaries for their business interests. No other province in Canada has legislation similar to the CGA. Since the Income Tax Act (“ITA”) already imposes restrictions on business activities of registered charities, the CGA’s provisions are both redundant and unnecessarily restrictive. The repeal of the CGA, then, is a welcome relief for Ontario charities wishing to acquire an interest in a business as an investment.
Proposed amendments to ease property ownership under Charities Accounting Act
Bill 212 also includes important changes to the Charities Accounting Act (“CAA”). Currently, section 8(1) of the CAA requires Ontario charities that hold land to devote that land to their charitable purpose. When a charity has not used or occupied its property for its charitable purpose for three years, nor is likely to do so in the immediate future, the PGT may vest that property in itself in order to sell it and use the proceeds for the charity’s charitable purposes.
Bill 212 provides that section 8 of the CAA is repealed and replaced with a far simpler provision stating that “A person who holds an interest in real or personal property for a charitable purpose shall use the property for the charitable purpose.”
The PGT has clarified that “holds an interest” is to be interpreted by its ordinary meaning; that is, including a beneficial interest or a legal interest.
Prudent investors do own land
The new language of section 8 will satisfy the Ministry of the Attorney General’s goal of ensuring that charities use real or personal property for their charitable purposes. At the same time, it allows charities more flexibility in being able to invest real or personal property to earn income.
As long as the investments of the charity comply with the prudent investor standards of the Trustee Act, a charity will be able to hold land or other investments such as mutual funds for any length of time, provided it uses those investments for its charitable purposes. Holding land will no longer be any different from holding any other type of investment.
A new section 4.1 would enhance the PGT’s powers to require documents and make enquiries where an executor or trustee holds a “substantial interest” in an entity. It would apply where an executor or trustee owns, controls, or has direction over more than 20% of a corporation’s voting rights or equity. The PGT will be able to apply to the Superior Court of Justice for an order compelling the charity to produce documents and provide information about the management, operation, ownership or control of the entity.
Obstructing or interfering with such an inquiry by the PGT will carry a fine of up to $25,000. This represents a much more appropriate scheme by which the PGT can oversee what is happening with charitable property in order to ensure it is being used for its intended purpose.
Technical amendments to Accumulations Act and Religious Organizations’ Lands Act
More technical but still welcome changes include amendments to both the Accumulations Act (“AA”) and the Religious Organizations’ Lands Act (“ROLA”).
The AA has been a concern for charities holding property in trust on terms that allow for the capitalization of income to be derived from the property. The AA provides for six possible accumulations periods. If the terms of the trust provide for the accumulation of income beyond one of these six periods, the AA directs the income to be distributed in a proscribed manner.
Bill 212 amends the AA so that the rules of law and statutory enactments relating to accumulations do not apply and shall be deemed never to have applied to trusts created for a charitable purpose.
As well, section 10(1) of the ROLA is amended by striking out the limit of “for one term of forty years or for more than one term of not more than forty years in all,” for which the trustees of a religious organization may lease land held for the benefit of the religious organization.
Conclusion
The changes for the charitable sector contained within Bill 212 represent a very important initiative by the provincial government. Congratulations are due to the Attorney General of Ontario through the PGT for spearheading these reforms to the regulation of charities in Ontario, as well as to the Ontario Bar Association Charity and Not-for-profit Section for engaging the Attorney General to institute these reforms. Bill 212 represents an important step towards reducing the regulatory burden placed on charities in Ontario.
Terrance S. Carter is the managing partner of Carters Professional Corporation, Orangeville, Ontario, and counsel to Fasken Martineau DuMoulin LLP. The author would like to thank Ryan Prendergast, student-at-law, for assisting in preparation of this article.
