Canada: Do You Know Who Your Directors And Managers Are? The Often Overlooked Risk To Charities

As with any federal budget, the 2011 budget contained provisions that captured the attention of media and public alike. The changes to the governance of charities through amendments to the Income Tax Act (the "ITA") were not among such provisions. Consequently, some very significant matters, which create a real risk to the livelihoods of charities,1 went largely unnoticed. Effectively, the new provisions, which came into force in 2012, render certain individuals ineligible to sit on Boards of Directors of registered charities or to be employed in senior capacities within registered charities. Should a charity allow "ineligible individuals" to act in such capacities, the charity will risk refusal or revocation of charitable status or suspension of the charity's authority to issue charitable receipts. As such, prudent charities are well advised to become aware of these provisions and their implications, and to develop a process in order to minimize this new risk.

Details of the Provisions

The "ineligible individual" provisions came as a result of concerns from the Canada Revenue Agency (the "CRA") that it had no legal authority to consider the identity of individual applicants for charitable status in determining whether to grant status to a particular organization. That is, CRA was not able to refuse to grant charitable status on the basis of the applicants, even when individual applicants had been previously involved with non-compliant charities or had criminal records involving breach of public trust, such as fraud or misappropriation. The relevant amendments to the ITA have now provided CRA with the ability to consider such risk factors as well as many others, including the prior and current activities of senior staff. The "ineligible individual" provisions were affected through amendments to sections 149.1(1), 149.1(4.1), 149.1(25) and 188.2(2) of the ITA. Essentially, these provisions grant CRA the discretion to refuse or revoke charitable status or suspend authority to issue charitable receipts if an "ineligible individual" is a member of the board of directors, a trustee, officer or like official, or any individual who otherwise controls or manages the operation of a charity. The amendments define two types of "ineligible individuals": individuals who were convicted of a particular type of offence and individuals who were previously involved with charities that had their status revoked for particular types of misconduct.

With respect to conviction for particular offences, an "ineligible individual" is a person who:

  • Has been convicted of a "relevant criminal offence", which is an offence that relates to financial dishonesty, including tax evasion, theft, fraud or any other criminal offence that is relevant to the operation of the charity, for which a pardon has not been granted, including offences in Canada or similar offences outside Canada; or
  • Has been convicted of a non-criminal "relevant offence", which is an offence that relates to financial dishonesty, such as offences under fundraising legislation, consumer protection legislation or securities legislation or any other offence that is relevant to the operation of the charity, including offences in Canada or outside Canada, within the past five years.

With respect to previous involvement with revoked charities, an "ineligible individual" is a person who:

  • Has been a member of the board of directors, a trustee, officer, or an individual who otherwise controlled or managed the operation of a charity during a period in which the organization engaged in conduct that constituted serious non-compliance with obligations of registered charities, including improper receipting arrangements, abusive tax shelters, or providing undue private benefit to directors, and for which the charity had its status revoked within the past five years; or
  • Has been, at any time, a promoter of a gifting arrangement or other tax shelter in which a charity participated, and for which the charity has been revoked within the past five years.

Implications of the Provisions

The "ineligible individual" provisions clearly raise a great many questions for charities. Principal among these questions:

  • What exactly will be included in offences that are relevant to the operation of the charity?
  • What will CRA do if one of a charity's directors or senior staff is an "ineligible individual", will the charity face immediate revocation?
  • What can a charity do to protect itself from the risk of inadvertently having an "ineligible individual" in the position of director or senior staff?

At this point, these questions are largely unanswerable. Administrative guidance on the operation of these provisions appears to be in development at CRA, but no policy statement has been released to date. However, CRA and the Charities Directorate have released some comments on how the provisions will be implemented.

What is a Relevant Offence?

Though it is still very unclear how broadly "(criminal) offences relevant to the operation of a charity" will be defined, the Director General of the Charities Directorate had indicated that in addition to any form of financial dishonesty, a relevant offence will depend on an analysis of "whether the offence, if repeated by the individual, could inflict harm on the organization or its beneficiaries".2 As such, a relevant offence will depend on the purposes of the charity but also likely CRA's interpretation of "harm".

How will CRA Respond to an "Ineligible Individual"?

In speculating how CRA will respond to an "ineligible individual" in a position of control in a charity, it is important to note that the legislation grants CRA the authority to refuse, or revoke status or suspend receipting authority, but it does not require it to do so. CRA has indicated that it does not intend for revocation to be automatic if an "ineligible individual" is on the board or management of a charity. Instead, CRA has stated that it will work with the charity. The charity will be given the opportunity to address CRA's concerns and may implement safeguards that will satisfy CRA. In addition, the Director General has indicated that charities will not be required to undertake background checks in order to show compliance with the new provisions, but in situations where a charity has been made aware of concerns about an individual, or where an individual's background has become public knowledge, "failure to take appropriate action could result in the denial of the application for registration, suspension of receipting privileges, or revocation of registered status".3 Again, at this point it is unclear what sort of "appropriate action" would be expected on the part of the charity.

How can Charities Protect Themselves?

With respect to whether a charity can protect itself from the risk of revocation or suspension of receipting authority arising from the involvement of "ineligible individuals", the answer is also unclear. As noted above, CRA has indicated that it will work with charities on this issue, but it has also noted that it is "prepared to act quickly where there is serious deliberate non-compliance".4 This, of course, is an especially worrisome statement because serious and deliberate non-compliance could occur in relation to one board member or senior staff without the whole board being aware. Further, in many instances, without disclosure from the individual in question, it would be extremely difficult for the board to become aware that an existing or potential board member, or senior staff, is in fact an "ineligible individual". In addition to the challenges noted above with respect to relevant offences, other challenges include how to gain information about non-criminal offences, offences outside Canada and involvement with a charity that had its revoked for non-compliance.

Despite the limitations to doing so, Charities may still want to consider developing processes to address the issue "ineligible individuals" on their boards. One potential method of doing so would be to develop a questionnaire for new applicants to the board that addresses unpardoned criminal convictions as well as revocation of charitable status and non-criminal convictions, within the past 5 years. At the same time, a prudent charity will also want to develop an annual questionnaire for existing board members that addresses similar issues. Though charities might be inclined to question current and potential board member with respect to their current involvement with other charities, the potential human rights implications of doing so should be considered in formulating the questions. Finally, charities might also want to consider by-law amendments with respect to "ineligible individuals" that require the completion of the questionnaire upon appointment and reappointment, and that allow the board of a charity to remove a director who is ineligible.

From an employment law perspective, the development of a process to address the issue of "ineligible individuals" among a charity's paid senior staff presents some additional difficulties. As senior staff, such as executive directors, high-level managers and directors of finance, are included in the category of individuals who control and manage a charity, charities will need to be concerned with whether any such staff are or become "ineligible individuals" and how they will respond in such situations. Though a screening process could be implemented, similar to the process discussed above for directors, charities will need to ensure that they are not asking a potential or existing employee questions that could run afoul of human rights legislation.

However, if an existing senior staff is found to be an "ineligible individual", it is far from certain that the staff can be terminated for just cause for this reason alone, particularly in light of the discretion that CRA has with respect to how it will respond to such individuals. Ultimately, a charity could incur a significant financial cost in the termination of such employees. Charities might consider addressing this issue in the employment agreements of senior employees, such as including an expectation that they do not become ineligible or providing a process that will be followed in the event that they become ineligible, for example.


To date, there have been far more questions about these legislative amendments than there have been answers, and until CRA releases its guidance on the "ineligible individual" provisions, it is difficult for charities to know how to respond. However, what has been clear is that CRA is willing to act on these provisions even before it has fully developed its processes. As such, charities might be best served by considering these provisions and their implications immediately. Notwithstanding this recommendation, it should be noted that the "ineligible individual" provisions do not provide for a due diligence defence on this issue. Therefore, despite all the best efforts undertaken by a charity to ensure that "ineligible individuals" are not in positions of control within the charity, its registration or receipting privileges may still be at risk.


1 Note that these provisions also affect Registered Canadian Amateur Athletic Associations (RCAAA's).

2 Cathy Hawara, "Director General's speech at the National Charity Law Symposium" (Speech Presented to Canadian Bar Association's National Charity Law Symposium, 4 May 2012); online: chrts/bdgts/2012/dgspch-eng.html.

3 Ibid.

4 Ibid.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Events from this Firm
27 Oct 2016, Seminar, Edmonton, Canada

Alberta is going through a difficult economic period. These times can be challenging and while owners struggle to get their business through the rough patch, they want to preserve the assets and capital they have built up.

2 Nov 2016, Webinar, Calgary, Canada

“Problem Employees” come in a variety of forms but seem to take up the majority of an employer’s time. Each form brings its own challenges and each must be addressed in a different way.

30 Nov 2016, Webinar, Calgary, Canada

Legal issues surrounding contaminated sites affects landowners, developers, realtors, as well as consultants and contractors working on the front lines. This webinar will provide a practical review of how the legislation is actually being used, recent court decisions, challenges with brownfield developments, and future changes.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.