Published with respect to the Charities Accounting Act
ONTARIO REGULATION 4/01 Section 2.1 “Authorization to Pay”
April 1, 2018
This Guidance provides general information and is not intended to be a substitute for legal advice. For legal advice, charities should consult their legal advisor.
This Guidance is dated and subject to amendment. To ensure access to the most recent edition, please visit the PGT webpage at: https://www.attorneygeneral.jus.gov.on.ca/english/family/pgt/charities/
Office of the Public Guardian and Trustee Guardianship
Disponible en français
Ontario Regulation 4.01 under the Charities Accounting Act (the Regulation), allows charitable corporations operating in Ontario to compensate directors and persons connected to them, without a court order, provided specific requirements are met.
Before this Regulation, directors were prohibited from receiving any payment or other personal benefit from a charitable corporation without a court order. This applied even if the goods or services were provided at less than fair market rates. Under the Regulation, a court order is no longer necessary for certain payments, provided the requirements of the Regulation are met.
If a charitable corporation wishes to make a payment which is not authorized under the Regulation, a court order is required. In cases where all parties consent, a Court order may be obtained through an application to the Office of the Public Guardian and Trustee under s.13 of the Charities Accounting Act (see section 17, below).
This guidance and the process for approving certain payments to directors under section 2.1 of the Regulation do not apply to the purchase of indemnity insurance. For the purchase of indemnity insurance, see section 2 of the Regulation here: https://www.ontario.ca/laws/regulation/010004Reg. 4/01.
The Regulation does not apply to reimbursement of reasonable expenses of a director. Generally, expenses can be reimbursed if they were incurred to carry out the charitable purposes, the amount is reasonable, and proper receipts are provided.
Subsection (6)(c) of the Regulation requires charitable corporations to consider this guidance when approving payments to directors or connected persons.
The Regulation can be used to authorize payments for most goods, services and facilities, provided all the requirements are met. It does not authorize payments for services provided by a director in their capacity as a director or employee, or for fundraising or real property transactions.
Examples of goods, services and facilities that may be provided by a director or connected person include, but are not limited to:
The Regulation does not authorize a charitable corporation to:
A conflict of interest arises when a director has a personal interest in the result of a decision made by the charitable corporation. Directors of charities have a fiduciary duty to avoid both a conflict of interest and the appearance of a conflict of interest. Directors must always make decisions in the interests of the charitable corporation and not allow their personal interests or preferences to affect their conduct and decisions.
Payment from a charitable corporation to a director or a connected person for goods, services, or facilities represents a personal benefit to the director and places them in a conflict of interest. The Court has allowed payments only in situations where, at the time the decision is made, it is in the best interest of the charitable corporation. The Regulation is intended to provide the necessary approval without having to obtain a Court order.
A charitable corporation for the purposes of this guidance is any non-share capital (not-for-profit) corporation operating in Ontario that is a registered charity or has exclusively charitable purposes. It does not include trustees of charitable trusts or non-incorporated charitable organizations and, therefore, those organizations cannot use the Regulation to pay trustees. The Regulation uses the term ‘corporate trustee’ to be consistent with other provisions within the Charities Accounting Act. Within this guidance, ‘charitable corporation’ is used in place of ‘corporate trustee’.
A ‘connected person’ is a ‘person connected to a director’ of the charitable corporation. The Regulation identifies the following individuals and businesses as ‘connected persons’:
The Regulation may be used by charitable corporations that have four or more directors who are eligible to vote on the payment to the director connected person. This means that charitable corporations must have at least five directors, four of whom are eligible to vote on the matter. See #13, ‘Who is eligible to participate in the meeting and vote on the matter?’ below for further information on who can make the decision to make a payment.
The Regulation cannot authorize payments that are otherwise prohibited by the charitable corporation’s governing documents. Directors of the charitable corporation should review the governing documents prior to authorizing a payment.
In addition, the Regulation cannot authorize payments that are otherwise prohibited by statutes applicable to the charitable corporation or rules professional of conduct applicable to the director. For example, s.95 (1) of the Corporations Act and 180(2) of the Canada-Not-for-Profit Corporations Act, each prohibit a director from serving as an auditor for the charitable corporation.
If the charitable corporation is a registered charity, directors may wish to review the rules regarding their particular situation with the Canada Revenue Agency, as the applicable requirements under the Income Tax Act may differ.
Before making a payment, the board of directors must believe that the arrangement is in the best interests of the charitable corporation. The directors must be able to show that:
The board of directors should consider the following:
When considering whether a payment is reasonable, charitable corporations should consider:
Other factors to consider:
The ‘maximum amount’ is the total amount that the charitable corporation has agreed to pay for provision of the goods, services or facilities. The total amount paid at the end of the contract may be less than the maximum amount; for example, if the contract includes an hourly rate and the actual hours required to fulfil the contract were less than anticipated.
Yes, however, in order to authorize a payment above the maximum amount within the original agreement, the charitable corporation must again satisfy the requirements under subsections (5) – (10) of the Regulation.
In addition to maintaining a copy of the agreement and the required approvals, the Board should fully document the decision making process, including market research, review of this guidance, and the rationale for its decision.
The following individuals are not eligible to participate in the meeting and vote on the matter:
The Regulation requires the charitable corporation to have at least four eligible voters in order to authorize the payment. It is important that the Board ensures that the ineligible director and any connected person are excluded from the meeting. Any meetings which require the director, or the connected person, to be in attendance should be completed prior to the meeting where the final discussion and decision of the eligible directors is to take place.
The total number of persons receiving payment under the Regulation must not exceed 20% of the number of voting directors serving on the Board.
Yes, the Regulation requires disclosure of the payment to the members of the charitable corporation, both at the annual members meeting and within the annual financial statements. The Regulation does not specify what information is to be disclosed or in what manner, however, disclosure should meet relevant accounting practices.
Financial disclosure is necessary to ensure transparency between the directors and the membership. The membership, which is usually responsible to elect directors, is best positioned to hold them accountable for the administration of the charitable corporation.
The PGT guidelines with respect to disclosure within the financial statements are:
Yes, if the charitable corporation is making a payment to another not-for-profit corporation or a for-profit corporation that it wholly owns and the payment does not benefit the director who is connected to the corporation, the requirements are reduced.
Most of the requirements are waived, including the necessity of having at least 4 directors who are eligible to vote. The only requirements to be met are:
As an example:
ABC Foundation (the Foundation) is a charitable corporation established for the purposes of raising, maintaining and disbursing funds for the benefit of ABC Charity (the Charity). The Chief Administrator of the Charity serves as a director of the Foundation by virtue of occupying the office of Chief Administrator.
In order to minimize costs, the Foundation wishes to contract with the Charity for office space and certain administrative services. As the Charity is the employer of a director of the Foundation, the Charity is a ‘connected person’ to that director.
Normally, in order for the Charity to contract with the Foundation, all of the requirements of the Regulation would need to be fulfilled. However, as the Foundation is a charitable corporation and no benefit would be received by the Chief Administrator/Director as a result of the transaction, the Regulation relieves the Foundation of some of the requirements.
In this example, the directors would need to ensure that the payment was made in the best interest of the Foundation and was reasonable, but the other requirements need not be met.
If a court order would have been required before this Regulation was made, and the payment is not authorized under the Regulation, the charitable corporation would still require a court order to make the payment.
The Regulation does not establish new restrictions on the ability of directors to receive a personal benefit under Ontario common-law. Rather, it provides a mechanism to allow charitable corporations to provide a benefit that would have required a court order before the Regulation. In situations where the requirements of the Regulation cannot be met, the charitable corporation would still need a Court order to make the payment.
As an example, in some religious organizations, it is important for the religious leader to also sit on the board of directors. The Regulation would not apply to this situation as the religious leader is an employee of the charitable corporation. In this circumstance, a court order would be required to pay the religious leader.
Where the common law requires a court order to make a payment and where the Regulation does not authorize the payment, a court order may, in certain circumstances, be issued under s.13 of the Charities Accounting Act. For more information on s.13 orders, please see the OPGT’s publication “How to get a Court Order on a Charitable matter Without Going to Court”, available on the OPGT’s webpage. See #19 “Further Information”, below, for the web-page address.
Directors of charitable corporations who fail to comply with the requirements in the Regulation could be in breach of their fiduciary duties and possibly liable to re-pay funds. Complaints about payments to a director or a person connected to a director would ordinarily be answered if the charitable corporation can show that it complied with the Regulation.
Ontario statute law can be found at: https://www.ontario.ca/laws
Federal statute law can be found at: http://laws-lois.justice.gc.ca/eng/acts/I.html
For the most recent version of this Guidance, or for more information on charitable matters in Ontario, please visit the OPGT’s webpage at:
You can also contact the Charitable Property Program of the Office of the Public Guardian and Trustee at:
Charitable Property Program
595 Bay Street, Suite 800, Toronto, ON, M5G 2M6
Tel.: (416) 326-1963 (please leave a message)
Toll- free: 1-800-366-0335 and then press 1, 3, 7
Fax: (416) 326-1969
The Office of the Public Guardian and Trustee Payments to Directors & Connected Persons ISBN 978-1-4868-1912-6
© Queen’s Printer for Ontario, 2018 Disponible en français
 A charitable corporation refers to a charity incorporated under the Ontario Corporations Act, the Canada Not-for-Profit Corporations Act, or some other provincial corporate legislation. The term is distinct from the Canada Revenue Agency’s use of the terms charitable organization or foundation under the Income Tax Act.
 Re Public Trustee and Toronto Humane Society et al.,  O.J. No. 534, 60 O.R. (2d) 236, 40 D.L.R. (4th) 111, 27 E.T.R. 40, 4 A.C.W.S. (3d) 446.
 For the purposes of the Guidance, governing documents includes Articles of Incorporation, Articles of Continuance, Articles of Amendment, Letter’s Patent, Supplementary Letter’s Patent, or the special Act creating the charitable corporation, and the corporation’s by-laws.