Please note: the page will print without the top and left navigation bars and in black and white only.
This bulletin provides a general explanation of the regulation. It is intended to help you understand the regulation and is not intended to be legal advice. Charities planning to take advantage of the regulation should read it first to fully comprehend how it may affect their charities. The regulation is available at law libraries or on the Government of Ontario's e-Laws site www.e-laws.gov.on.ca. If you have questions about how it applies in your particular circumstances, you may want to consult a legal advisor knowledgeable in charities law, or for financial matters, an accountant.
Restricted or special purpose trust funds involve money given to the charity to be used for a particular purpose. In this bulletin they are called special purpose funds.
Examples of special purpose funds are money given to a university for a scholarship fund or money given to a medical charity for cancer research.
Before the regulation came into effect, charities had to invest money donated for a special purpose separately from all other money of the charity, including other special purpose funds. They could not combine money given for two purposes in one investment.
The regulation is permissive, not mandatory. It allows charities to choose whether they wish to indemnify their directors, officers and trustees or to purchase liability insurance for them. It is up to each charity to decide whether it is appropriate for that charity to provide an indemnity or purchase insurance for its officers, directors or trustees.
The regulation does not take priority over written documents or court orders concerning the charity. This means that a charity cannot make a payment if a will, or the document that creates a trust (the Letters Patent if the charity is a corporation, the constitution for an unincorporated association or the trust deed for a trust) does not allow the payment. Directors or trustees should review the Letters Patent, constitution or trust deed before making a payment allowed under the regulation.
If the charity is a corporation, the Corporations Act will also apply.
Charities that indemnify or purchase liability insurance for their directors, officers or trustees, or combine special purpose funds, are responsible for ensuring that all of the requirements of the regulation are met. They must also keep records showing that the requirements of the regulation have been met. For more detail, see subsection 1(3) of the regulation.
The regulation allows charities to indemnify their directors, officers or trustees. This means the charity can agree to compensate them for any financial losses they may incur in the course of managing the charity in good faith.
The regulation also allows charities to buy liability insurance. The liability insurance would require an insurer to compensate for financial losses suffered in the course of managing the charity in good faith. For more detail, see subsections 2(1) and 2(3) of the regulation.
Charities are only authorized to give an indemnity, or buy indemnity insurance, under certain conditions. They are:
The factors a charity must consider before giving an indemnity or buying liability insurance are:
Not all factors will be equally important to all charities. Some factors may not apply to some charities. All charities that consider providing an indemnity or buying insurance must weigh each of the factors and must keep records showing that they have considered those factors.
Before the regulation came into effect, charities had to keep money given to them for a special purpose separately from all the other money of the charity. Charities could not combine money given for different purposes even for investment.
The regulation now permits charities to combine special purpose funds with other special purpose funds for investment purposes. The money no longer has to be kept in separate investments, provided the charity follows the directions set out in the regulation.
The regulation does not allow a charity to combine special purpose funds with the charity's general funds. It will not affect the requirement to restrict the use of funds only for the "special purpose" for which they were donated.
Funds can only be combined if it will be beneficial to both funds. For example, if combining funds will result in one fund getting a lower rate of return than it would have if it had been separately invested, then the charity cannot combine the funds.
If a charity combines special purpose funds, all of the gains, losses, income and expenses on the combined property must be split between the funds combined. Each fund should receive, or pay, its proportionate share in accordance with generally accepted accounting principles.
If a charity combines special purpose funds, it must keep complete records. The regulation sets out the records the charity must keep. The charity must keep separate accounts for each special purpose fund and for the combined fund.
The record keeping requirements set out in the regulation are in addition to requirements that may exist under any other law. This means that, if a charity combines funds, it must keep the records required by the regulation and the records required by other laws relating to the funds.
If a charity combines special purpose funds, it must keep the following records for each of the individual funds:
If a charity combines special purpose funds, it must keep the following records for the combined fund: