Canada: Considerations On Winding Up A Charity

We are asked from time to time to assist with the dissolution of an existing registered charity.  However, often we suggest to our clients that it might be better for them to either amalgamate the existing charity into another charity or keep it in existence but inactive.

There are various reasons why charities wish to dissolve.  Sometimes the problem that they were established to address has been solved.  Sometimes there is no leadership left to govern or manage the charity.  Other times the work once done by the charity has been taken over by another charity.

When a charity is formally dissolved as a matter of corporate law or trust law, generally speaking, it must confirm that it has no liabilities and must then distribute its remaining assets to other qualified donees.  It then notifies the Canada Revenue Agency ("CRA") and files a final tax return confirming it has dealt with its remaining assets as required.  Most liabilities end with dissolution.  Bequests that come in after dissolution are either given to other similar charities (if a court determines that the deceased had a general charitable intent) or are distributed to other beneficiaries if a court decides that the deceased had only a specific intent to benefit the particular dissolved charity.

A charity that is no longer needed in the future should perhaps not be dissolved if there is a likelihood of future bequests that might otherwise be lost. Instead, the charity that is considering dissolution should consider either maintaining itself in an inactive state or merging.  Remaining in existence but inactive will require, at minimum, an annual meeting and the filing of an annual tax return.  It will also require that a board of directors remain in place.

Another option is to amalgamate the no longer required charity into another charity.  This will result in bequests to the predecessor charities going to the amalgamated successor.  This will also result in the liabilities of the predecessors becoming liabilities of the amalgamated charity. Therefore this option should not be used if the inactive predecessor has a real possibility of having known or unknown but possible tort liabilities that could come to light later.

A final option for a charity that seems superfluous is to turn control over to another group that may be able to use it.  There is no principled legal reason to prevent a charity from changing its mission and governance and effectively becoming another kind of charity.   Given how long it takes to register a new charity, making an existing registered charity available to a new group can be a valuable gift to them.  That being said, CRA has serious concerns about the sale or other transfer of charitable registrations so transfers should only be done with careful consideration and expert advice.

Charities wishing to dissolve should consider whether dissolution is the right option or whether some other option may better serve the public interest.  Miller Thomson LLP's charity specialists have significant experience assisting our clients to cease operations in a careful and cautious way so as to maximize the public value of the charity being closed.