Can a Charity Director Be Paid in Ontario? A Complete Guide

Many charity directors in Ontario volunteer their time and are not paid for their board service. That is the general expectation under Canadian charity law.

However, under certain conditions introduced in 2018, directors of charities operating in Ontario can be compensated for services they provide to the organization — but only if strict legal requirements are met.

The rules around director compensation have evolved.

Before 2018, paying a charity director required court approval or consent from the Public Guardian and Trustee.

Today, Ontario Regulation 4/01 under the Charities Accounting Act allows charities to pay directors without going to court, but only when specific criteria are satisfied.

Getting this wrong can put the charity's registration at risk and expose directors to personal liability.

This guide explains the legal framework governing director compensation in Ontario.

It covers what is allowed, what is prohibited, and what steps charities must take to structure lawful payment arrangements.

Whether a charity is considering compensating a director for the first time or reviewing an existing arrangement, understanding these rules is essential to staying compliant with both provincial law and Canada Revenue Agency expectations.

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The Common Law Baseline: Why Directors of Charities Generally Cannot Be Paid

Under Ontario common law, directors of registered charities have a duty to serve without receiving payment for their director role.

This principle stems from the fiduciary duties directors owe to the charity and its charitable purposes.

The General Rule: Directors of Charities Must Serve Without Pay

Directors of charities in Ontario operate under a fundamental legal principle known as the "duty to act gratuitously."

This means they cannot receive direct or indirect remuneration from the charity they serve simply for holding their position as a director.

The rule comes from case law rather than specific legislation.

Courts have long held that charity directors are fiduciaries who must put the charity's interests ahead of their own financial gain.

This prohibition applies to:

• Board members
• Trustees
• Officers (such as president, treasurer, or secretary)
• Any person in a governance role

The only traditional exception to this rule requires a court order specifically authorizing payment to directors.

Without such court approval, payments to directors for serving in their directorial capacity violate common law principles.

This restriction exists to protect charitable resources.

It ensures that funds donated for charitable purposes actually serve those purposes rather than enriching the people who govern the organization.

What Is "Remuneration" for These Purposes?

Remuneration includes any form of compensation a director receives for acting as a director.

This covers both direct and indirect payments from the charity.

Direct remuneration includes:

• Salaries or wages for board service
• Director fees or stipends
• Bonuses tied to director duties

Indirect remuneration includes:

• Payments to a director's family member for no legitimate service
• Below-market purchases of charity assets
• Loans on favourable terms

The prohibition does not prevent charities from reimbursing directors for reasonable out-of-pocket expenses incurred while performing their duties.

Travel costs, accommodation, and meals during charity business remain permissible.

Payment to directors for services unrelated to their director role (such as employment in a separate capacity) falls into a different category with its own rules.

Before 2018: The Court Order Requirement

For decades, Ontario charities faced strict legal barriers when it came to paying directors.

The law required directors to serve without compensation, and any exceptions demanded formal court approval.

Before April 2018: A Court Order Was the Only Option

Directors of charitable corporations in Ontario had a duty to act gratuitously.

This meant they could not receive any payment for serving on the board or for providing services to the charity.

The only way around this rule was to obtain a court order.

Charities needed to formally apply to the court and demonstrate why paying a director was necessary and appropriate.

This process was time-consuming and expensive, often requiring legal representation and detailed justification.

The court order requirement applied to:

• Payments for serving as a director
• Compensation for services provided to the charity by a director
• Benefits flowing to "connected persons" (family members or related entities)

Some charities could use a streamlined alternative through the Office of the Public Guardian and Trustee. 

Rather than proceeding through a full court hearing, a charity could enter into an Administrative Agreement with the PGT, which provided a practical path forward without the cost and delay of formal litigation. 

Separately, under section 13 of the Charities Accounting Act, a charity could apply to the Superior Court of Justice for an order authorizing the payment. 

In that process, the PGT's role was to provide consent or a statement of no objection — not to issue or approve the order itself. 

Only the Superior Court of Justice holds the authority to grant a section 13 order. The charity still had to demonstrate that the payment arrangement was clearly in its best interests. 

The 2018 Change: What Ontario Regulation 4/01 Now Allows

Before April 2018, directors of charitable corporations in Ontario could not receive payment for their service without a court order.

Ontario Regulation 112/18 changed that by amending Ontario Regulation 4/01 under the Charities Accounting Act, creating a new framework that allows certain payments to directors and connected persons.

After April 2018: Ontario Regulation 4/01 Opens a New Path

On April 1, 2018, the amendments to Ontario Regulation 4/01 took effect.

These changes modified the strict common law rule that previously prohibited charitable corporations from compensating directors.

The regulation now permits charitable corporations to pay directors without obtaining court approval, as long as they meet specific requirements.

This applies both to payments made directly to directors and to people connected to them.

Directors can receive compensation for serving on the board itself or for providing other services to the charity.

The key difference is that charities must follow the detailed rules set out in the regulation.

These rules include limits on how much can be paid, requirements for board approval, and disclosure obligations.

The Charities Accounting Act still governs these payments.

Charities that fail to follow the regulation's requirements may still need to seek court approval or risk legal consequences.

What Is a "Connected Person" Under the Regulation?

A connected person is someone who has a close relationship with a director.

The regulation recognizes that payments to these individuals could indirectly benefit directors.

Connected persons include:

• The director's spouse or common-law partner
• The director's children, parents, siblings, and other close family members
• Corporations that the director controls or in which the director holds a significant interest
• Partners in a partnership where the director is also a partner

The same rules that apply to paying directors also apply to paying connected persons.

A charity must ensure any compensation to these individuals meets the regulation's requirements.

This prevents charities from bypassing the rules by simply paying a director's family member or business instead of the director directly.

For more on how the CRA evaluates relationships between directors and related parties, see our guide on what "at arm's length" means for Canadian charities. 

The Checklist: Eight Requirements to Authorize a Payment

Ontario Regulation 4/01 sets out eight specific conditions that charitable corporations must satisfy before paying a director or connected person for services.

Each requirement protects the charity from conflicts of interest while allowing necessary compensation when appropriate.

How to Authorize a Payment Under the Regulation: Eight Requirements

1. Best Interest of the Charity

The board must determine that hiring the director or connected person serves the charity's best interests.

Directors should evaluate the individual's qualifications and experience for the work.

They must also consider whether the arrangement could harm the charity's reputation or funding.

The board should compare the value of using the director versus hiring an independent party.

2. Reasonable Payment Amount

The payment must be reasonable based on market rates for similar services.

Factors include the quality and value of the services, the reliability of the person providing them, and what the charity has previously paid for comparable work.

3. Effect on Solvency

The payment cannot cause the charity's debts to exceed its assets or make it insolvent.

4. Agreed Maximum Amount

All directors and the connected person must agree in writing to a maximum payment amount before services begin.

The final payment cannot exceed this amount unless the agreement is amended following the Regulation's requirements.

5. Board Approval

Every director except the conflicted director must agree in writing that the payment complies with the Regulation.

The director receiving payment cannot participate in discussions or vote on the matter.

6. Number of Directors

The board must have at least four voting directors, not counting the conflicted director.

The total number of people receiving payments under the Regulation cannot exceed 20% of voting directors.

7. Disclosure

The charity must disclose payments to directors and connected persons at the annual members' meeting and in annual financial statements.

The statements must include the director's name and a description of the transaction.

8. Guidance from the PGT

The board must review and consider any guidance on payments issued by the Public Guardian and Trustee and posted on the Government of Ontario's website.

What the Regulation Does NOT Permit — Hard Prohibitions

Even when a charity follows all the rules in Ontario Regulation 4/01, certain types of payments to directors remain completely prohibited.

These restrictions apply to all charitable corporations in Ontario without exception.

What the Regulation Still Prohibits — No Exceptions

Directors of Ontario charitable corporations face certain absolute payment prohibitions, even when the board follows every other requirement in the Regulation.

Directors cannot be paid for serving as directors.

This means no honoraria, stipends, or fees simply for attending board meetings or fulfilling their duties as board members.

The duty to act gratuitously in the governance role remains absolute.

This prohibition is separate from the question of employment. Under Ontario Regulation 4/01, a director can be paid as an employee or staff member of the charity — for example, by serving as Executive Director — without a court order, provided the eight criteria in the Regulation are satisfied. These include the requirement that the board has at least five voting members (four independent directors plus the compensated director) and that compensated directors do not exceed 20% of the total voting directors. A director who is also an employee must still recuse themselves from any board discussion or vote about their own compensation.

Three additional types of payments are completely prohibited regardless of how the arrangement is structured:

Fundraising services provided by a director or connected person Services related to purchasing real estate Services related to selling real estate

These restrictions apply regardless of how reasonable the payment might be or how qualified the director is to provide these services.

Additional Considerations

Beyond Ontario Regulation 4/01, charity directors and boards must navigate Canada Revenue Agency requirements for registered charities.

They must also understand when court orders remain necessary despite the Regulation's framework.

CRA Rules for Registered Charities — A Separate Layer

The Canada Revenue Agency imposes its own rules on director compensation that operate independently of Ontario provincial law.

CRA requirements focus on protecting a charity's registered status and receipting privileges.

Payments to directors must be reasonable and necessary for carrying on the charity's charitable activities.

The CRA examines whether compensation arrangements involve private benefit, which can jeopardize registration.

Directors who receive payment must actually provide services beyond their governance role.

The amount paid must align with fair market value for comparable services in the sector.

Registered charities must document all compensation decisions carefully.

This includes board minutes showing how the board determined the payment was reasonable and necessary.

Poor documentation can trigger CRA audits and potentially lead to revocation of charitable status.

Loss of registration means losing receipting privileges and facing reputational damage that can devastate fundraising efforts.

For a broader overview of your annual compliance obligations, see our CRA Compliance FAQ for registered charities. 

ONCA and CNCA — Corporate Law Requirements

The Ontario Not-for-Profit Corporations Act (ONCA) and the Canada Not-for-Profit Corporations Act (CNCA) set out corporate governance rules that apply alongside the Charities Accounting Act.

These statutes require directors to act honestly, in good faith, and in the charity's best interests.

ONCA imposes conflict of interest requirements when directors or officers receive compensation.

The conflicted director must disclose their interest and abstain from voting on the matter.

They cannot be counted toward quorum for that decision.

The board must determine that the transaction is fair and reasonable to the corporation.

Directors and officers who fail to follow proper procedures face potential personal liability.

Both ONCA and CNCA allow members to challenge transactions that breach fiduciary duties.

Ontario charitable corporations must ensure their compensation arrangements satisfy all three regulatory frameworks: the Charities Accounting Act, CRA rules, and applicable corporate legislation.

For a fuller overview of what ONCA means for your organization, see our guide on what ONCA is and how it affects Ontario nonprofits and charities. 

Legal Tip — Check Your Governing Documents First

Before relying on Ontario Regulation 4/01, a charity must review its Letters Patent or Articles of Incorporation. If the governing documents explicitly state that directors must serve without remuneration, the Regulation alone cannot override that restriction. The charity would first need to file Articles of Amendment under ONCA to remove or amend that provision before any compensation arrangement could proceed lawfully.

When a Section 13 Order Is Still the Right Route

Some compensation arrangements cannot proceed under Ontario Regulation 4/01 and require a court order under section 13 of the Charities Accounting Act. Only the Superior Court of Justice can issue a section 13 order. The Public Guardian and Trustee does not approve or issue these orders. Rather, the PGT's role is to provide consent or a statement of no objection, which the court takes into account when deciding whether to grant the order. 

Section 13 orders are necessary when a charity has fewer than four voting directors, excluding the conflicted director. They also apply when more than 20% of directors would receive payments, exceeding the Regulation's threshold.

Certain complex arrangements may fall outside the Regulation's scope. In these cases, a section 13 order is required.

The section 13 process involves applying to court and obtaining PGT consent. Legal fees and court costs make this route more expensive and time-consuming than following the Regulation.

However, it provides certainty that the arrangement complies with Ontario law. Some boards choose this path for significant or unusual compensation arrangements even when the Regulation technically applies.

Case Study Scenarios

Looking at specific examples helps clarify when directors can and cannot receive payment. The following scenarios show how Ontario's compensation rules apply in practice.

Real-Life Scenarios — Applying the Rules

Scenario 1: Director Compensation for Board Service

A charity director asks to receive $500 per month for attending board meetings and fulfilling director duties. This payment is not permitted.

Under Ontario Regulation 4/01, the prohibition on paying directors for governance duties is absolute. No amount of board approval or procedural compliance can authorize payment for serving as a director.

The restriction goes further at the federal level. Under the Income Tax Act, a registered charity must be operated exclusively for charitable purposes. Paying a volunteer to perform governance functions is treated by the CRA as a non-charitable purpose and may constitute an undue private benefit under CRA Guidance CG-027. Even if a charity believed it had found a technical workaround under provincial law, the CRA could still treat the payment as grounds to revoke the charity's registration.

Scenario 2: Director Providing Professional Services

A director who works as an accountant offers to prepare the charity's year-end financial statements for $3,000. This payment may be permitted if the charity follows the strict procedure in Ontario Regulation 4/01.

The director must provide services outside their director role. All directors must unanimously approve the payment amount.

The compensation must be reasonable and in the charity's best interest.

Scenario 3: Director as Part-Time Employee

A director takes on a part-time administrative role, working 15 hours per week for $25 per hour. This arrangement may be permitted with proper procedures.

The director must perform actual work beyond director duties. The charity must document that the employment serves a genuine operational need.

The board must approve the arrangement unanimously and ensure the hourly rate is reasonable for similar positions.

Conclusion

Director compensation in Ontario charities requires careful attention to provincial and federal rules. Directors cannot receive payment simply for serving on the board.

They can be compensated for services provided outside their director role if the charity follows strict procedures under Ontario's Charities Accounting Act and its regulations. The process requires unanimous board approval, documented records, and proof that the payment serves the charity's best interests at a reasonable amount.

Charities that fail to follow these rules face serious consequences. Under section 188.1 of the Income Tax Act, the Canada Revenue Agency can impose penalties specifically for undue benefits provided to directors or others. The standard penalty is 105% of the improper benefit amount. For repeat offences, this increases to 110%.

Directors who receive unauthorized payments may be required to return the full amount and could become ineligible to serve on other charity boards. The charity itself risks losing its charitable registration status and ability to issue donation receipts.

If your charity needs guidance on director compensation policies or wants to ensure compliance with Ontario's requirements, B.I.G. Charity Law Group can help. The firm provides practical advice to charities navigating compensation rules and other governance matters.

Contact us at 416-488-5888 or dov.goldberg@charitylawgroup.ca to discuss your specific situation. You can also visit CharityLawGroup.ca to learn more about our services available or schedule a FREE consultation to get started.

Frequently Asked Questions

Directors considering compensation from an Ontario charity face specific legal restrictions and procedural requirements. The following answers address common questions about when directors can be paid, what approvals are needed, and how to structure compensation arrangements properly.

Are directors of Ontario charities allowed to receive compensation for their services?

Directors of Ontario charities cannot be paid simply for serving on the board. The Canada Revenue Agency prohibits meeting fees, honorariums, or other payments for governance duties alone.

Directors have a fiduciary duty to act without personal benefit from their board role. Ontario law historically required a court order before any director could receive compensation.

Since 2018, Ontario Regulation 4/01 under the Charities Accounting Act provides an alternative pathway that allows limited director compensation without court approval in specific circumstances. Directors may receive payment only when they provide operational or management services separate from their governance responsibilities.

The compensation must be for actual work performed, not for board duties.

What legal rules govern paying a director of a registered charity in Ontario?

The Income Tax Act (Canada) and CRA guidance establish federal requirements for all registered charities. These rules prohibit private benefit and require that any compensation serves the charity's purposes.

Ontario's Charities Accounting Act and Regulation 4/01 set provincial standards for charitable corporations. Directors subject to these rules must either obtain a court order or comply with the regulation's specific conditions before receiving payment.

The charity's governing documents may impose additional restrictions. Directors must review the bylaws and letters patent to confirm whether director compensation is permitted and what approval process applies.

What is the difference between reimbursing a director's expenses and paying director fees?

Expense reimbursement covers actual out-of-pocket costs a director incurs while performing charity duties. These payments do not constitute compensation because the director receives no personal gain.

Examples include travel costs, meals during board meetings, or supplies purchased for charity activities. Director fees represent payment for services or board participation.

Ontario charities cannot pay fees for attending meetings, serving on committees, or performing other governance functions. These payments would provide private benefit and violate both CRA rules and provincial law.

Charities must document all reimbursements with receipts and written policies. Proper records demonstrate that payments represent genuine expenses rather than disguised compensation.

When can a director be paid for staff work performed for the charity, and what safeguards are required?

A director may receive compensation when employed in an operational role distinct from board service. The individual must perform actual management or program work that would otherwise require hiring another person.

The compensation must reflect fair market value for the services provided. Charities should compare salaries for similar positions in comparable organizations to establish reasonable amounts.

The director cannot participate in any board discussions or votes regarding their own employment or compensation. The remaining directors must approve the arrangement through a documented resolution.

The charity's governing documents must permit directors to be employed by the organization. Written employment agreements should clearly describe the staff duties and distinguish them from governance responsibilities.

The agreement must specify the compensation amount and basis for determining it was reasonable.

What approvals and documentation should a charity have in place before compensating a director?

Charities must establish whether Regulation 4/01 applies or whether a court order is required. Regulation 4/01 allows compensation without court approval only when specific conditions are met, including limits on the number of compensated directors and requirements for board size.

The board should pass a resolution approving the compensation arrangement. The resolution must document that the director will provide services unrelated to governance, that the compensation is reasonable, and that conflict of interest procedures were followed.

A written service agreement or employment contract should detail the director's duties and compensation terms. The charity must gather evidence supporting the reasonableness of payment, such as salary surveys or job descriptions from similar organizations.

The charity should maintain disclosure records showing the director declared their conflict of interest and abstained from related decisions. These documents protect the charity if CRA or the Public Guardian and Trustee questions the arrangement.

How can a charity ensure director compensation is reasonable and avoid conflicts of interest?

Charities should research compensation in similar organizations. Factors to consider include the charity's size, budget, geographic location, and the complexity of duties.

Professional associations and salary surveys can provide helpful benchmarks.

The board must have clear conflict of interest policies. Directors should disclose any personal interest in charity transactions.

If a director has a conflict, they must leave the room during discussions and not vote on the matter.

Independent directors without conflicts should make all compensation decisions. The board should document the reasons for determining compensation is reasonable and in the charity's best interest.

Regular reviews help ensure compensation remains appropriate as the charity changes. Boards should revisit compensation annually and adjust based on current market rates and the director's duties.

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