A number of changes have been recently passed by government affecting charitable organizations. Changes worthy of taking note include:
Charities Directorate
At the federal level, the Charities Directorate, indicates:
• It will no longer review, as part of applications for charitable status, ‘draft’ governing documents. Governing documents must be in final form.
• Online services will come on stream, starting November 2018, to enable charities to file their T3010 annual returns on line, and to make updates their charitable account information.
Ontario Corporate Reform
In Ontario, corporate reform legislation, has now been passed. A couple of points for charitable organizations to note state:
• A person who is not a member of the organization, may be appointed a Director
• Member meetings may be held electronically ( as distinguished from regular board meetings )
• If approved by an extraordinary resolution of the Board ( 80% approval), the organization can decide not to have an audit if annual revenue is less than $100,000
Social Investments
Draft legislation amending the Charities Accounting Act in Ontario provides clarity around ‘social investments’ being made by a charity.
‘Social or impact’ investments by a charity generally represent an investment that provides both a financial return and a ‘social’ return that benefits the public and an organizations’ charitable purpose. Example will be social investments that earn below market rate returns. While such investments have been made for many years, it was always unclear, whether social investments met the ‘prudent investor’ criteria set out in Trustee legislation.
The proposed changes to legislation now introduce the term ‘social investment’ – one that furthers the purpose of the charity, and achieves a financial return. To meet this definition, there are a number of provisions within the legislation to consider.
Charities are permitted to make social investments, subject to the following conditions:
• The investment can be made, unless the charity is restricted from the investment under its governing documents. If there is no authorization to spend original capital (an endowment), a social investment should not be made if the expectation is that original capital will be spent. A lower financial return is permitted so long as the original capital value is preserved.
• The social investment will not be subject to prudent investor standards, applicable to other/portfolio investments. A social investment does not have to be made with the expectation of earning a ‘market rate of return’, such as can be achieved from a marketable security • A charity (the Board) must consider whether it needs ‘advice’ when making a social investment and to follow such advice. It must (as with any investment), periodically review its social investments from time to time.
• The board must be satisfied the investment is in the best interests of the charity
The changes will be helpful to provide clear legislative authority for a charity to make social investments. Boards will want also to look at such investments with a view to CRA’s view that a charity can’t make investments at below market terms to ‘non-qualified’ donees, which could be considered to be a ‘gift’ to the person/entity receiving the investment. It will be important to ensure that the social investment is structured as a ‘program related’ investment (one linked to the organization’s charitable purpose), or is made to a qualified done within CRA requirements.
Boards considering social investments within their mission/investment strategies should consider carefully the legislative changes, and move forward with the benefit of professional advice.