Can You Pay Yourself a Salary in a Non-Profit in Canada?

Running a non-profit organization (NPO) or registered charity in Canada comes with unique compensation rules. Many founders and directors wonder: Can you pay yourself a salary in a non-profit in Canada? The answer is yes, but with important restrictions - especially for directors of charities situated in Ontario.

  [Note that the material provided in this blog post, as is all material on this website, is for information purposes only. It is not intended to be legal advice. You should not act or abstain from acting based upon such information without first consulting an experienced charity legal professional. Email or phone correspondence with B.I.G. Charity Law Group or reading this website does not constitute a client-solicitor relationship until formally retained by a signed engagement letter.]

Understanding Compensation in Canadian Non-Profits

Who Can Be Paid in a Non-Profit?

1. Employees and Executives
   • Can receive salaries if compensation is:
     • Reasonable and justifiable for the work performed
     • Aligned with industry standards (use resources like CharityVillage or Imagine Canada reports)
     • Approved by the board and properly documented
2. Founders
   • May receive salaries if:
     • They serve in an employment capacity
     • Compensation is transparent and avoids conflicts of interest
       
       
3. Directors (Special Rules Apply)
   • Typically serve as unpaid volunteers
   • May receive limited compensation if:
     • Bylaws explicitly permit it (and Articles of Incorporation don't prohibit it)
     • Payments are approved by non-interested directors, avoid conflicts of interest, and amounts are reasonable and properly documented. Note to check your provincial guidelines or speak with a nonprofit and charity lawyer, as some provinces may prohibit directors from receiving compensation.

Ontario-Specific Rules for Charity Compensation of Directors

See here how Can a Canadian Charity Located in Ontario Pay its Directors.

When Directors Can Receive Compensation

• Bylaw Permission Required: Your organization's bylaws must explicitly allow director compensation (most charities prohibit this)
• Independent Approval Needed: Any payments must be approved by directors who aren't receiving compensation (see more requirements in the above-referenced link).
• Permissible Benefits Include:
  • Expense reimbursements (travel, training) with proper receipts

What to Avoid

• Excessive payments that could jeopardize charitable status
• Undisclosed compensation that violates transparency rules
• Conflicts of interest in approval processes

Key Compliance Requirements Across Canada

1. CRA Guidelines
   • Salaries must be "reasonable" based on comparable positions
   • Registered charities face stricter rules than non-profits
   • All compensation must be reported (T4 slips for employees)
     
     
2. Governance Best Practices
   • Document all compensation decisions in board minutes
   • Disclose executive salaries in financial statements
   • Recuse interested parties from compensation votes
     
     
3. Tax Implications
   • Salaries are taxable income
   • Proper payroll deductions must be made
   • Contractors require T4A slips if paid over $500

Practical Steps for Non-Profits Considering Salaries

✅ Review Your Bylaws - Check provisions about compensation

✅ Benchmark Salaries - Research comparable non-profit roles

✅ Implement Approval Processes - Ensure independent review

✅ Maintain Transparency - Document all decisions

✅ Consult Professionals - Lawyer/accountant for compliance

Final Thoughts

While Canadian non-profits can pay salaries to employees and executives, director compensation is much more restricted - especially in Ontario. The key is maintaining transparency, reasonableness, and compliance with:

• Your organization's bylaws
• CRA regulations
• Provincial laws (like Ontario's Charities Accounting Act)

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