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CED, an Overview of the Law — Charities: Forms of Charities

With charity awareness techniques in the news (ice bucket challenge, anyone?), this C.E.D. post provides an overview of the law of charities and, in particular, the forms of charities as they apply to trusts, corporations, unincorporated organizations, as well as the classification of charities under the Income Tax Act.


BY: Marni M.K. Whitaker

III.1-5: Forms of Charities

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III.1: General 
See Canadian Abridgment: EST.V Estates and trusts — Charities

Charities are not themselves legal entities, but come into being as testamentary trusts,1 inter vivos trusts 2 and charitable corporations.3

The instruments which create charities may be wills, declarations of trust and charitable letters patent, under either provincial legislation or a federal statute.4 A charitable corporation is not per se a trust.5 A statement of a company's objects does not take away its capacity to pursue other objects, but a restriction in positive terms, while it does not limit the corporate powers of the company, restricts the powers of directors,6 and this is important when consideration is given to the drafting of letters patent.

III.2:  Trusts 
See Canadian Abridgment: EST.V Estates and trusts — Charities; EST.II Estates and trusts — Trusts

A gift can be made to persons, including a corporation, but it cannot be made to a purpose or to an object. So too, a trust may be created for the benefit of persons or cestui que trust but not for a purpose or object unless that purpose or object is charitable.1 

All non-charitable purpose trusts are invalid because a purpose cannot enforce a trust.2 
It is axiomatic that a validly-constituted charitable trust will not be allowed to fail for lack of a trustee.3 The character of the trustee influences the construction in favour of charity. The court will lean to a finding that it is a charity.4
Where a hospital has transferred funds to a foundation established by the hospital and there is no evidence that the hospital intended to create a trust for the hospital, the foundation owns the property and can determine how to deal with it.5 

III.3:  Corporations 
See Canadian Abridgment: EST.V Estates and trusts — Charities; BUS.I.3 Business associations — Nature of business associations — Nature of corporation; BUS.II.3 Business associations — Creation and organization of business associations — Corporations

Charities may be incorporated under federal legislation1 or provincial legislation.2
A charitable corporation is not per se a trust however, a charitable corporation has some of the characteristics of a trustee.3 The assets of a charitable corporation cannot be returned to its members on dissolution.4 A charitable corporation is deemed to be a trustee under the Charities Accounting Act.5

The directors of a charitable corporation are not entitled to remunerative employment by the corporation, in the absence of a provision in the trust instrument or a court order.6 

An incorporated charitable institution does have the right to sue without obtaining leave of the Attorney General.7 
The Bankruptcy and Insolvency Act does not apply to corporations organized without a view to profit.8 

Officers of a charitable corporation are bound by the rules which affect trustees.9 The Attorney General may be able to require the officers and directors to account. Application can be made to combine trust funds in order to enlarge the scope of permissible investments. The court has jurisdiction, where the Public Guardian and Trustee consents or does not object, to authorize by way of scheme.10 It does not follow that the range of investments ought to be widened as a matter of course whenever a charity has found that its available income is less than the trustee of the charity would wish, or that the existence of a multiplicity of trusts under the administration of a single body of trustees ought in every case to be regarded as justifying a pooling of investments.11

A charitable corporation holds its corporate assets beneficially to be used only and strictly in accordance with its charitable objects. In this context, a charity's directors have fiduciary obligations to ensure that a charitable corporation's assets are applied in accordance with its corporate objects.12 

Charitable corporations owe fiduciary duties to the beneficiaries of its charitable objects, to the public which supports the privileges granted to charitable corporations and to those who donate to the charitable corporation.13

III.4: Unincorporated Organizations
See Canadian Abridgment: EST.V Estates and trusts — Charities; BUS.I.1 Business associations — Nature of business associations — Nature of associations; BUS.II.1 Business associations — Creation and organization of business associations — Associations

An unincorporated society cannot sue and has no corporate status. The Attorney General is the only person who can commence and carry on an action on behalf of an unincorporated public charity.1 

An absolute gift is not subject to the common law restrictions that apply to a charitable trust. For example, an out-and-out gift may be made to an unincorporated society, or to a society whose objects are not solely charitable, or to a political organization.2 A gift to an unincorporated society is likely to fail for want of a beneficiary or for remoteness, as a purpose or object cannot sue and if the society subsequently incorporates, this will not save the gift; but if it is charitable, the Attorney General can sue to enforce it.3

Unincorporated charitable associations can hold property by its members in trust for a charitable purpose.4 

III.5: Classification of Charities under the Income Tax Act (Canada)
See Canadian Abridgment: EST.V.6 Estates and trusts — Charities — Administration of charities; TAX.II.9.d Tax — Income tax — Other deductions — Charitable donations; TAX.II.17.d Tax — Income tax — Tax credits — Charitable donations; TAX.II.22.e Tax — Income tax — Special rules — Charities

The Income Tax Act makes a distinction as to "charitable foundations", which are divided into "private"1 and "public" foundations2 and "charitable organization".3 For an organization to be a "public foundation", more than 50 per cent of the directors, trustees, officers or like officials must deal at arm's length, and not more than 50 per cent of the capital contributed may come from one person or group. A "charitable organization" carries on charitable activities.

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