What Do New Directors of a Canadian Charity or Nonprofit Need to Know?

Becoming a director of a Canadian charity or nonprofit is both an honour and a responsibility. Whether you are joining the board of a newly incorporated nonprofit or stepping into an established organization, understanding your role is crucial. Directors play a key role in governance, financial oversight, and ensuring compliance with Canadian laws. This guide outlines everything you need to know as a new director of a charity or nonprofit in Canada.

^{Understanding Your Legal Duties as a Director}

As a director of a Canadian charity or nonprofit, you must comply with various legal responsibilities. These responsibilities ensure that the organization operates ethically, lawfully, and in the best interest of the community it serves.

_{Duty of Care}

You must act with diligence, prudence, and competence when making decisions for the charity or nonprofit. This includes attending meetings, reviewing financial statements, and staying informed about the organization’s activities.

_{Duty of Loyalty}

You must act in the best interest of the charity or nonprofit, avoiding conflicts of interest. If you have a personal or business relationship that could affect your decisions, you must disclose it and remove yourself from related discussions.

_{Duty of Obedience}

You are required to ensure that the charity or nonprofit complies with all applicable laws, including the Income Tax Act, the Ontario Not-for-Profit Corporations Act (ONCA), and any governing documents such as the organization’s bylaws and articles of incorporation.

_{Understanding Governance and Board Responsibilities}

A strong board is essential for a well-functioning charity or nonprofit. As a director, your role is to provide oversight and strategic direction rather than day-to-day management. Here are key governance responsibilities:

_{Financial Oversight}

• Approving annual budgets and financial reports.
• Ensuring proper record-keeping and compliance with financial regulations.
• Monitoring fundraising efforts and ensuring funds are used for charitable purposes.

_{Policy Development}

• Establishing policies on conflict of interest, financial management, and operational procedures.
• Reviewing and updating policies regularly to align with changing laws and best practices.

_{Risk Management}

• Identifying potential risks, such as financial mismanagement or reputational damage.
• Ensuring the charity or nonprofit has adequate insurance and internal controls.
• Creating crisis response plans to address legal or operational issues.

_{Hiring and Evaluating the Executive Director (if applicable)}

• If your charity or nonprofit has an executive director, the board is responsible for hiring, evaluating, and supporting them in leading the organization.

_{Understanding Compliance and Reporting Requirements}

All Canadian charities and nonprofits must meet specific reporting obligations to maintain their registered status with the Canada Revenue Agency (CRA).

_{Filing the Annual T3010 Return}

Charities must file the T3010 Registered Charity Information Return annually. Failure to do so can result in penalties or revocation of charitable status.

_{Keeping Financial Records}

• Maintain accurate records of all income, expenses, and donations.
• Retain records for at least six years from the end of the fiscal year.

_{Maintaining Proper Charitable Purpose Activities}

A charity or nonprofit must use its resources exclusively for charitable purposes. It cannot engage in excessive business activities or use funds for private benefit.

_{Managing Conflict of Interest}

Conflicts of interest occur when a director’s personal or professional interests could interfere with their duty to the charity or nonprofit.

_{How to Handle Conflicts of Interest:}

• Disclosure: Directors must disclose any potential conflict to the board.
• Recusal: Directors with a conflict should not participate in discussions or decisions related to the conflict.
• Documenting Decisions: The board should record discussions about conflicts in meeting minutes.

_{Engaging in Fundraising and Revenue Generation}

While charities and nonprofits rely on donations, they can also engage in limited business activities. However, they must follow CRA guidelines.

_{Permitted Fundraising Activities:}

• Soliciting donations from individuals and corporations.
• Organizing events such as galas or marathons.
• Applying for government or foundation grants.

_{Business Activities and Limitations:}

• Charities and nonprofits can operate related businesses, such as thrift stores, as long as profits support charitable programs.
• Unrelated businesses are not allowed, as they can jeopardize the organization’s status.

_{Final Tips for New Directors}

• Attend Board Training: Many organizations offer governance training for nonprofit directors.
• Review Governing Documents: Familiarize yourself with the charity or nonprofit’s bylaws, policies, and financial reports.
• Stay Informed: Laws and best practices change, so ongoing education is important.
• Ask Questions: If you’re unsure about an issue, seek advice from legal or financial experts.

_Conclusion

Serving as a director of a Canadian charity or nonprofit is a rewarding experience, but it comes with significant responsibilities. Understanding your legal duties, governance role, and compliance obligations will help you contribute effectively to your organization’s success. By staying informed and proactive, you can ensure that your charity or nonprofit remains in good standing and continues making a positive impact in the community.

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