Canada: Community Hub Strategies For Social Enterprise

Last Updated: July 26 2016
Article by Brennan M. Carroll, Nick G. Pasquino and Ryma Nasrallah

Most Read Contributor in Canada, November 2017

In August 2015, Premier Wynne's Community Hubs Framework Advisory Group released a report titled Community Hubs in Ontario: A Strategic Framework and Action Plan (the "Community Hubs Action Plan"). The report identified barriers to community hub development and presented recommendations, which the Ontario government is considering as it operationalizes its commitment to fostering community hub development.

For more information on the Community Hubs Action Plan, please see BLG's April 22, 2016 Bulletin: " Introduction to Ontario's Community Hubs Strategic Framework and Action Plan".

For more information on how recent amendments to rules governing the sale of surplus property by school boards can help hubs find space for social enterprise and other programs, please see BLG's May 11, 2016 Bulletin: " Disposition of Surplus Properties by School Boards — How New Rules Benefit Community Hubs and Impact Others".

Participating organizations can carry on various activities through the community hub so long as they are aware of the legal risks and obligations involved. In this Bulletin, we will discuss the tax rules associated with carrying on social enterprise activities through the community hub and how careful structuring can alleviate risks and ensure compliance with laws.

Social Enterprise Challenges Faced by Registered Charities and Not-for-Profits

The relationships between organizations participating in a community hub are typically structured and governed by agreements signed by all participants. The type of agreement and appropriate terms will depend on the needs of the parties and the types of activities that will be carried out in the community hub. The Income Tax Act (Canada) imposes additional restrictions if a participant (or the hub itself, if it has a separate legal existence from the participants) is a registered charity or a tax-exempt not-for-profit organization.

Registered charities that are designated as charitable organizations or public foundations are only permitted to carry on "related businesses" (private foundations are prohibited from carrying on any kind of business, whether related or unrelated). Related businesses are commercial activities (a) run substantially by volunteers or (b) linked and subordinate to a charity's charitable purposes. Examples of "linked" and "subordinate" related businesses include museum gift shops, university book stores and hospital parking lots. So, registered charities looking to participate in a hub that includes a social enterprise must be sure the activities and structure complies with applicable tax laws. Registered charities violating the restrictions under the Income Tax Act (Canada) may face penalties, suspension of receipting privileges or the ultimate sanction of losing their charitable status (triggering the revocation tax).

Not-for-profits claiming the income tax exemption under the Income Tax Act (Canada) are also limited in their activities, but different rules apply. A tax-exempt not-for-profit must be organized and operated exclusively for any purpose except profit. Any profits earned by a tax-exempt not-for-profit must generally be "unanticipated and incidental" and arise from activities directly connected to the organization's not-for-profit purpose or purposes. Significant surpluses are usually "red flags" for the Canada Revenue Agency, although not-for-profits can maintain "reasonable" reserves in most instances. Planned revenue generating activities, where the intention is to earn a profit, are a problem, even if the goal is to invest those profits in other not-for-profit programs. If the conditions under the Income Tax Act (Canada) are not met, a not-for-profit that earns a profit can lose its tax-exempt status.

Community hub participants must be aware of these rules when considering and structuring social enterprise activities in a hub or otherwise.

We set out below some structuring alternatives:

1. Social Enterprise Carried On Directly by Hub Participants:

Hub participants can carry on a social enterprise activity directly through increased resources (capital and staff) or through contractual arrangements with third parties, such as joint ventures, leases, licences, or franchises. The advantage to carrying on the social enterprise directly is that hub participants maintain governance control over the activity and utilize available capacity. The disadvantages include risk to a registered charity's charitable status or risk to a not-for-profit organization's tax-exempt status. The situation is increasingly complex if some participants in the activity are registered charities and others are tax-exempt not-for-profit organizations (different analysis would apply), so directly carrying on the activity may not be appropriate for organizations hoping to work together to run a for-profit social enterprise through a "contractual" hub.

2. Social Enterprise Carried On Through a Separate Corporation:

Hub participants may consider carrying on an activity indirectly, through forming a new registered charity, a new tax-exempt not-for-profit corporation or a taxable for-profit subsidiary corporation. There are several advantages of using a separate corporation, including: to limit risk to each participant's charitable or not-for-profit status; to isolate the main assets of the participant(s) from liability from the hub or social enterprise. A key disadvantage of a hub corporate structure is that it requires additional resources and effort to govern (although we have developed tools that can assist in reducing complexity, cost and risk). From a tax perspective, the ability of a tax-exempt not-for-profit to operate a profit-making activity in a taxable subsidiary is not without limitations. Of course, the separate registered charity or tax-exempt not-for-profit "hubco" must also comply with the restrictions under the Income Tax Act (Canada), but any risk related to a failure to do so is limited to the assets in the "hubco" only. A for-profit corporation is not similarly limited in its activities, but will not enjoy the same tax benefits as a registered charity or not-for-profit corporation, although careful planning with the advice of professional advisors can significantly reduce the impact of applicable taxes through a gift/dividend strategy making this option appealing to many.

3. Social Enterprise Carried On Through a Limited Partnership:

A limited partnership hub model is a possible structuring option and one that is ideally situated to provide flexible solutions to complex hub arrangements involving charitable corporations. To implement a limited partnership model, hub participants incorporate a for-profit subsidiary to act as the "active" general partner of a limited partnership (protecting participants from liability), and each becomes "passive" partners, contributing capital in their capacity as limited partners of the partnership but not managing the work of the hub or social enterprise. This approach is advantageous because revenue flows back to hub participants directly in a more tax-advantageous manner than a for-profit subsidiary structure. In addition, the hub participants are shielded from liability, as the general partner will be 100% liable for the actions of the partnership. The structure also allows maximum flexibility to bring on additional partners in future, if desired. Like any structure, the primary disadvantages are the cost of governance and compliance. More importantly, hub participants must play a very limited role in decision-making in order to enjoy the legal protection as limited partners. From a tax perspective, there are also limitations for registered charities and tax-exempt not-for-profit holding an interest in a limited partnership.

Ultimately, the structure of community hubs or social enterprise depends on the unique facts of each situation, and creating the correct structure depends on the circumstances. The starting principle is Keep It Simple! Only introduce structure/complexity to solve challenges facing hub participants.

Getting advice from professionals who are familiar with these issues is also critical to ensure you get it right and comply with applicable laws.

About BLG

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.

In association with
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
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 you may opt out by clicking here

    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.

    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.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    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.

    By clicking Register you state you have read and agree to our Terms and Conditions