KerrLaw Logo JAMES D. L. KERR
TO:           Business Clients FROM:   James D.L. Kerr Lawyer
            17 – 151 Merton St.
, Ont., M4S 1A7
            Tel 416 485-4254
            Fax 416 485-8836

            Certified Specialist Civil Litigation
DATE:      October 6, 2004

A non-profit corporation is usually incorporated under the Ontario or federal Corporations Acts, which each provide for “corporations without share capital”.  Such corporations are owned not by shareholders but by “members” and are established by a charter issued by the government, based upon the application submitted in writing by the “incorporators”.

I recommend that the application for incorporation be drafted in co-operation with a lawyer and auditor, and that the draft application be then submitted to each of the Ministry of Government Services (formerly the Ministry of Consumer and Commercial Relations), the Public Trustee and the Canada Revenue Agency (“CRA” – formerly “CRA”) for comment before formal filing with the Ministry of Government Services. The requirements of the three government agencies are not always consistent, each with the others, which is all-the-more reason to obtain pre-approval. 

Government Involvement

The federal and provincial governments, while involved themselves in some goods works, for the most part leave charitable and philanthropic work to private individuals.  However, through income tax deductibility of some donations, the governments contribute to, and even encourage, such works.  In exchange for this assistance and co-operation, the governments also impose reporting requirements and reserve the right to review the activities of charitable groups. 

Registration as a charity entitled to provide donees with receipts for income tax purposes involves a careful assessment of the applicability of the various statutory provisions and regulations under the Income Tax Act (Canada).  Tax laws are frequently changed and the general information contained in this letter may not be current.  This letter is intended only as a starting point for further consideration and inquiry.  While I am prepared to provide preliminary assistance in this regard, I am not a tax advisor and, accordingly, I do not take responsibility for the taxation aspects of a transaction and, in particular, I exclude, from my retainer, responsibility for any application for registration as a registered charity under the Income Tax Act.  In this regard, I recommend that my clients seek the advice of a competent Chartered Accountant or other tax advisor, to whom I would be pleased to offer my co-operation. 

 The establishment of a non-profit charitable corporation involves satisfying the requirements of three separate government agencies: the Ministry of Government Services (if incorporated provincially) or Consumer and Corporate Affairs Canada (if incorporated federally); the Public Trustee and Guardian (Ontario); and CRA (Canada).  I see no advantage to incorporating federally, in most cases, and, accordingly, I recommend provincial incorporation. 


Incorporation of a provincial non-profit corporation is accomplished by way of establishment of a corporation without share capital under the Corporations Act. This process involves the following:

 1.      The Selection of a Name:  Selection of a corporate name is becoming one of the more difficult aspects of incorporation.  The Province now subscribes to a cross-Canada database maintained by Consumer and Corporate Affairs Canada.  A proposed corporate name must not only comply with the regulations applicable to corporate names but cannot be the same as or confusingly similar to any other corporation, business or trade mark in Canada.  The problem should be self-evident.  In addition, where "association" appears as part of the corporate name, at least two thirds of those persons represented by the corporate name must become "members" (discussed below) of the corporation.  There are other limitations with respect to the selection of a name and I would be pleased to advise you with respect to those limitations.

 2.         Head Office: You must select a "head office", which may not be merely a post office box.  This is the address at which the corporation may be served with notices and legal process, and at which its books and records must be available for inspection.  Notice must be given to the government of any change of address, and failure to do so may result in serious actions (e.g., dissolution of the corporation) without notice being given of the intended action.

 3.         Board of Directors: The corporation must have at least three (3) directors and you will be required to provide the first, middle and surnames of each director as well as their residence addresses (again, not a post office box).  The corporation itself is started by the proposed incorporators (the first Directors), who must be adults and should be residents of Canada (for income tax and land ownership purposes).  Each of them is required to sign a Consent, in writing, to act as a Director.

 4.         Objects: The application for incorporation must state the corporation's objects and those objects will be limited by the requirements of the Public Trustee and CRA (discussed below).  In general, a corporation without share capital may have objects of a patriotic, religious, philanthropic, charitable, educational, agricultural, scientific, artistic, social, professional, fraternal, sporting or athletic nature.  A corporation without share capital must be carried on without the purpose of gain for its members and any profits or other accretions to the corporation must be used in promoting its objects.  If the corporation is to be registered with CRA as a charity, its objects must be confined to charitable purposes. Generally speaking, the objects of a charitable corporation will be for the relief of poverty, for religious or educational purposes, or otherwise for the general benefit of the community. I suggest that my clients provide me with a list of the objects which are reasonably envisaged as ones the corporation may engage in, and I will then review the proposal with CRA to ensure that the objects do not present any difficulty with a later application for charitable status.

 5.       Members: A corporation without share capital does not, of course, have "shareholders"; such a corporation must, however, have "members" (those persons who ultimately control the corporation through the election of the board of directors).  Directors must also be members of the corporation; the incorporators are, be definition, members and the first directors.  Defining the members may be the single most important part of the incorporation.  On the one hand, the incorporators must ensure that membership is based broadly enough so that the corporation is able to recruit new members, not only immediately, but also for the foreseeable future.  At the same time, they should incorporate some screening procedure to ensure that undesirable persons do not become members in sufficient numbers to take over the corporation.  Finally, one must also ensure continuity and succession, so that a hundred (or even a thousand) years from now the corporation still exists, albeit with a different cast of characters, but still carrying out the same works.

 6.         Auditor:  A charitable corporation is subject to the Charities Accounting Act and the Charitable Gifts Act with the result, among others, that such a corporation can, without a court order, hold land in Ontario for three years only, is required to provide to the Public Trustee information concerning its operations, assets and finances and a high level of responsibility is imposed on the directors and offices.  Unlike business corporations, corporations without share capital must appoint an auditor and must have audited financial statements (with the attendant additional cost). 

 7.        Charitable Status:  Certain corporations without share capital will achieve tax exempt status so long as they comply with income tax legislation, but may not issue income tax receipts for donations.  If it is desired to obtain the ability to issue tax receipts for donations, the corporation must be charitable within the common definition of that word and must become registered as a charity under the Income Tax Act (Canada).  In general, and subject to the exclusion of liability mentioned at the outset of this letter, the Income Tax Act and regulations provide as follows:

(a)  Under the Income Tax Act, "registered charity" includes both "charitable organizations" and "charitable foundations".


(b)  Charitable organizations must meet the following criteria:


i.      All resources must be devoted to charitable activities;


ii.     At least 50% of the directors, officers, etc., must deal at "arms length" (i.e. be, essentially, unrelated);


iii.    May not have received more than 50% of its capital from any one person or related group;


iv.    May carry on related businesses or make donations, within limits, to qualified "donees" (this essentially means up to 50% of a charitable organization's resources may be donated to other registered charities);


v.     A charitable organization is exempt from income tax and is entitled to issue receipts for donations.


vi.    Charitable foundations are divided into two types: "public" and "private" foundations.


vii.   More than 50% of the directors, officers, etc. of public foundations must deal at arm's length and it may not have received more than 50% of its capital from any one person or related group.


viii.   Private foundations are any charitable foundations other than "public" foundations.  Private foundations may not carry on a related business and may not incur debts.  Private foundations are also exempt from tax and are also entitled to issue tax receipts.


ix.    Charitable foundations must expend a certain amount on their objects each year and this is referred to, in the legislation, as the "disbursement quota". The disbursement quotas for private and public foundations are different. The disbursement quota for a private foundation for a taxation year is the aggregate of:


A.    80% percent of the aggregate amount of gifts received by the foundation in the immediately preceding taxation year for which receipts were issued other than gifts of capital received by way of bequests or inheritance, gifts received subject to trusts or directions that they be held for at least ten years, or gifts received from registered charities;


B.    100% of the aggregate amount of gifts received in the immediately preceding taxation year from registered charities other than specified gifts;


C.    4.5% (or proportionately reduced percentages if a particular taxation year of the foundation is fewer than 365 days) of the amount, if any, by which the aggregate value of the investment assets (other than prescribed property) of the foundation at the beginning of the year, determined in prescribed manner, which were not directly used in charitable activities or administration, proportionately reduced if such investment assets were not owned for the entire immediately preceding taxation year, exceeds the aggregate of the total amounts to which the percentage in paragraphs (a) and (b) above apply;


D.    As a transitional provision, if the foundation claimed an income reserve (repealed with respect to taxation years commencing after 1983) for its last taxation years commencing before 1984, the amount by which 90% of such reserve which would otherwise have been included in the disbursement quota of the foundation under the rules in respect to the taxation year commencing in 1983 less the total amount of such percentages in paragraphs (a) and (b) above apply exceeds the disbursement quota for the foundation otherwise determined, is to be added to the disbursement quota of the foundation at a rate of at least 10% of such additional amount in the ten taxation years of the foundation commencing after 1983.

Registered Charities are required to file annual returns with the tax department as well as with provincial authorities under applicable provincial statutes.  From this, and from the foregoing, the need for the on-going participation of a competent auditor/tax advisor should be self-evident.  If you have yet to consult an auditor and do not have someone in mind, I will be pleased to provide my recommendation, at your request.

Cost of Incorporation

Establishing a non-profit/charitable corporation involves out-of-pocket expenses incurred on account of the incorporation of approximately $550.00.  With respect to fees, it is more problematic.  While I am able to charge a fixed fee with respect to the incorporation and organization of a business corporation (which in many respects are “stock” items), I am not able to offer the same service with respect to the incorporation of a corporation without share capital. This is owing both to lack of standardization – each charity’s objects are designed to meet its specific requirements – and due to the limited demand.  Accordingly, my services are billed on an hourly basis – see Fee Schedule posted on my web site at  In some instances I may offer a fee reduction to a specific charity as my own charitable contribution. 

Total cost will be dictated by the level of complexity and will be further influenced by factors beyond my control, such as time incurred in responding to, satisfying and reconciling the requirements of the Public Trustee and CRA.  On average, you may expect to spend between $1,500.00 and $2,500.00, exclusive of out-of-pocket expenses (such as the incorporating fees and other disbursements).  I wish to emphasize, however, that I am not guaranteeing that total cost will not exceed this level. 

In addition, fees and some disbursements bear GST, unless the client which I bill is GST exempt – which I must know in advance for billing purposes.  Government filing fees do not bear GST if paid by the client (i.e., if you send me the money in trust in advance and I pay from trust), but otherwise I must add GST to the non-taxable amount when I invoice the client. 


DISCLAIMER: The foregoing is not intended to be a comprehensive guide to the applicable law. General Client Memoranda and mailings from James D.L. Kerr ● Lawyer are intended to inform clients and acquaintances with respect to current issues that may be of interest to them. Memos are current to the date shown on the Memo. The law is constantly changing, however, and for that reason a Memo may not be completely accurate after it's stated date. Where circumstances warrant, the advice of a lawyer or other qualified professional should be obtained.

2005 James D.L. Kerr