A few weeks into our class, there was a brief discussion regarding the liability of directors of charity. If my recollection is correct, they are held to a different standard and are often not liable which had something to do with not wanting to impose liability on entities that purport to do good for our society. A rather strange phenomena, I thought, because it seems that frequently, many malicious acts are carried out disguised, and hidden behind goodwill. A brief and preliminary research into this topic seems to prove that indeed the liabilities of directors for a charity seem very scarce. This has been needling me for a while now and I wanted to do quick research on the topic.
A brief look at the Canada Non-for-profit Corporations Act (CNC)[1] shows striking similarities to the Canada Corporations Act. [2]
CNC s. 126 (1), disqualifications of directors requires (a) anyone who is less than 18 years of age; (b) anyone who is incapable; (c) a person who is not an individual; and (d) a person who has the status of a bankrupt. Basically, copy and paste of s. 105(1) of Canada Business Corporations Act (CBCA).
Similarly, CNC s. 148(1), duties of directors and officers are mirror copy of s.122 (1) of CBCA. Duties of directors and officers are required to a) act in honest and good faith, to the best interest of the corporation, and b) exercise care, diligence and skill of a reasonably prudent person. BC Societies Act adds that directors “must act with a view to the purposes of the society” (s. 53(1))
Income Tax Act[3] provides more information on the penalties, notably section 149(4.1)(c), in case of false statement… …made in circumstances amounting to culpable conduct or (e) where ineligible individual is a director or an officer the minister can revoke charitable status. The CRA discusses where a charity could be revoked mostly regarding improper record keeping and failure to adhere to charitable purpose.[4]
These sections, when taken as a whole, seem to indicate that directors of a charity share more or less the same responsibilities and obligations as those of a for-profit corporation, but any severe improper conducts are dealt simply with revocation of the charity status rather than personal obligations. Although statutory obligations do infer that loss of status can result in liability for a director, and possible statutory offences under the Charitable Fundraising Act,[5] but these cases seem few and far between.
An article published by Vancouver Sun in February of 2023 looked into revocation of 12 B.C. based charities where the CRA alleged “preordained circular transaction among related persons and charities” which was “entirely orchestrated for the purpose of earning tax credits from the donations” and “protecting the donor from public scrutiny.”[6] A lawyer who set up the charities noted that this was “unfortunate and unjustified” revocation that could discourage Canadians from making charitable donations.[7] Furthermore, Christopher Richardson, who CRA is alleged to have engaged in series of “circular transactions” is appealing the revocation. In the article, there is no mention of the director’s liability and/or penalties conferred to them. Isn’t this conduct “akin to fraud” and used as “shield for fraudulent or improper conduct as discussed by the court in Transamerica?[8] Shouldn’t the corporate, or charity veil be lifted?
In fact, article titled International Cash Conduits and Real Estate Empires: A Case Study in Canadian Philanthropic Crime describes the concept of burner charity phenomenon where its purpose is to funnel funds to foreign agents while remaining “shielded from Canadian law” appearing disposable and replaceable.[9] The article explains that the burner charities “offer a means of exploiting systemic weaknesses and loopholes in Canadian Tax law.”[10] So, the question still remains unanswered. Why do charities and their directors have such high protection?
My somewhat imaginative, perhaps borderline nonsensical explanation is that perhaps charities are imbued with its own purpose. We had extensive discussions on the purpose of a corporation. In Dodge v Ford, the court explained that the purpose of the corporation is to maximize profit for the shareholders.[11] With this purpose underneath, we have separate personality and business judgment rules that grants large discretions and protections for the directors. On the contrary, charities are created for the purpose of carrying out charitable purposes strictly set out by the CRA.[12] Which in turn would be considered a separate entity from the directors and grants a separate layer of protection for the directors with the assumption of their altruistic involvement. I am not sure if I am convinced by my own reasoning. Again, shouldn’t altruistic motive be open to a higher level of scrutiny when alternative motives are found? Shouldn’t the ability of charities to issue donations receipts confer more responsibilities to the entity and the directors? There are many questions unanswered and I do intend to look into this matter further and any opinions would be most welcome.
[1] https://www.canlii.org/en/ca/laws/stat/sc-2009-c-23/latest/sc-2009-c-23.html
[2] https://www.canlii.org/en/ca/laws/stat/rsc-1985-c-c-44/latest/
[3] https://laws-lois.justice.gc.ca/eng/acts/i-3.3/FullText.html
[4] https://www.canada.ca/en/revenue-agency/services/charities-giving/charities/revoking-registered-status/types-revocation.html#other
[5] https://www.bennettjones.com/Publications-Section/Updates/Directors-Liabilities—Charities
[6] https://vancouversun.com/news/local-news/charitable-status-revoked-for-12-b-c-charities-linked-to-single-vancouver-company
[7] Ibid.
[8] Transamerica Life v. Canada Life (1996) 28 O.R. (3d) (Veil)
[9] Howe, M., & Sylvestre, P. (2025). International Cash Conduits and Real Estate Empires: A Case Study in Canadian Philanthropic Crime. Journal of White Collar and Corporate Crime, 6(1), 4-16. ttps://doi.org/10.1177/2631309X221138974
[10] Ibid
[11] Dodge v. Ford Motor Co. – 204 Mich. 459, 170 NW 668 (1919)
[12] https://www.canada.ca/en/revenue-agency/services/charities-giving/charities/registering-charitable-qualified-donee-status/apply-become-registered-charity/establishing/charitable-purposes.html
