By Nicolas F. Baass LL.B., LL.M. (Tax)
According to government statistics there are approximately 161,000 not-for-profit organizations in Canada, of which 19,000 are federally incorporated. Up until now these non-profit corporations were predominantly incorporated pursuant to Part II of the Canadian Corporations Act (“CCA”).1 The CCA is largely unchanged from the date of its enactment in 1917, and as such it is cumbersome and lacks adequate provisions for corporate governance and other provisions which one would expect to find in an act regulating corporations in Canada. Bill C-4, the Canada Not-for-Profit Corporations Act (“NPCA”), provides for an overhaul of non-profit corporate law with the phased repeal of the CCA and the continuance of CCA non-profit corporations into NPCA not-for-profit corporations.
Bill C-4 was given Royal Assent on June 23, 2009, after three previous attempts to introduce the NPCA died on the Order Paper. Bill C-21 introduced on November 15, 2004 died on the Order Paper on the dissolution of Parliament in 2005. On June 13, 2008 Bill C-62 died on the Order Paper on the dissolution of Parliament in 2008, and the original Bill C-4, introduced on December 3, 2008, died on the Order Paper when Parliament was prorogued on December 4, 2008.
While the NPCA has been given Royal Assent, it is not yet in force and will not be until it is proclaimed into force by an Order-in-Council. Once the Act comes into force, non-profit corporations governed by Part II of the CCA will have three years to make an application for continuance under the new NPCA, failing which the corporation will be dissolved.2
The purpose of the new NPCA is to make it easier for non-profit corporations to take advantage of liability protection offered by incorporation and to offer predictability and accountability one would expect of a modern piece of corporate legislation. The new provisions of the NPCA are modeled after the provisions of the CBCA. Some of the key features of the NPCA are listed below (Parts refer to portions of the NPCA):
- PART 2 – Incorporation: Under the CCA non-profit corporations are incorporated by way of letter patent which require Ministerial approval. The NPCA provides for a streamlined incorporation process similar to that of the CBCA, which allows for incorporation by way of right. Approval of the incorporation is automatic as long as the requirements set forth by the NPCA are met.
- PART 3 – Capacity and Powers: A corporation governed by the NPCA has the capacity, rights, powers and privileges of a natural person. Under the CCA such rights and powers had to be explicitly laid out in order for a corporation to benefit from them.
- PART 9 – Directors and Officers: Directors and officers are subject to similar standards of honesty, care, diligence and skill as found in the CBCA.
- PART 10 – By-Laws and Members: The NPCA sets out rules concerning voting, attending and calling meetings.
- PART 12 – Public Account: Different financial reporting requirements exist depending on the status of the corporation as a soliciting or non-soliciting corporation. In essence, soliciting corporations are corporations that request and receive gifts or donations in excess of a prescribed amount.
- PART 13 – Fundamental Changes and PART 14 – Liquidation and Dissolution: The NPCA provides rules for amalgamation, continuance, liquidation and dissolution.
As these noted changes indicate, the NPCA will be harmonized with the CBCA to a great extent and will thus streamline the law of non-profit corporations.
In terms of income tax, continuance from one legislative framework to another should have no income tax consequences. Indeed, according to CRA administrative positions the continuance of a corporation should not result in a deemed disposition for the continuing corporation.3 Furthermore, a non-profit corporation’s status as a non-profit organization under paragraph 149(1)(l) of the Income Tax Act (“ITA”) or as a registered charity under subsection 248(1) of the ITA should not affected by the continuation of a non-profit corporation from the CCA to the NPCA.
Not-for-profit corporations that require continuance from CCA to the NPCA should contact the law offices of Shea Nerland Calnan LLP.
1. Not to be confused with the Canada Business Corporations Act (“CBCA”) that applies to regular for-profit share corporations.
2. See subsection 298(5) of the NPCA.
3. See Jack Bernstein, “Corporate Continuance” (2008) vol. 16, no.10 Canadian Tax Highlights, 8-9 and CRA Document No. 2005-0147131R3 – Continuance, 2005.