Charities May Be Non-Soliciting
By Joel Secter
Regular readers will be aware that the Canada Not-for-profit Corporations Act (CNCA) classifies not-for-profit corporations as either soliciting or non-soliciting. Generally speaking, a corporation becomes soliciting when it receives more than $10,000 in public money during its last financial year. This distinction is important because the requirement for appointing a Public Accountant and the necessary level of financial review will depend on whether the corporation is soliciting or non-soliciting. Recently, we became aware of a situation where a small charity, continued under the CNCA, was informed by their accountant that they would require an audit under the new rules by virtue of the fact that they solicit funds from the public. Though most charities will need to conduct an audit under the CNCA, we are writing to clarify that this is not always going to be the case.
By way of background, the charity in question is a foundation with assets in excess of $1 million. While it does solicit funds from the public, its income is primarily derived from board members and is usually only a few thousand dollars. Suffice it to say that this foundation exists to disburse funds, not to raise them. The accountant, who is apparently not as familiar with the CNCA as they should be, mistakenly informed the charity that they would be considered soliciting under the CNCA and, therefore, must conduct an audit. Notwithstanding their assets are more than $1 million, we believe this charity will be a non-soliciting corporation.
The CNCA provides a framework for whether a corporation will be a soliciting or non-soliciting corporation. A corporation is determined to be a soliciting corporation if it receives income during a single financial year in excess of $10,000 in the form of:
(a) donations or gifts or, in Quebec, gifts or legacies of money or other property requested from any person who is not:
(i) a member, director, officer or employee of the corporation at the time of the request,
(ii) the spouse of a person referred to in subparagraph (i) or an individual who is cohabiting with that person in a conjugal relationship, having so cohabited for a period of at least one year, or
(iii) a child, parent, brother, sister, grandparent, uncle, aunt, nephew or niece of a person referred to in subparagraph (i) or of the spouse or individual referred to in subparagraph (ii);
(b) grants or similar financial assistance received from the federal government or a provincial or municipal government, or an agency of such a government; or
(c) donations or gifts or, in Quebec, gifts or legacies of money or other property from a corporation or other entity that has, during the most recent financial year, received income in excess of $10,000 in the form of donations, gifts or legacies referred to in paragraph (a) or grants or similar financial assistance referred to in paragraph (b).
Corporations that are not found to be soliciting corporations are by default non-soliciting corporations. Conversely, any corporation that meets the definition of “soliciting” in one financial year will maintain that status for the three following financial years. Applying the definition correctly is of great importance considering it a key factor in determining the level of financial review required by a corporation.
If we apply the statutory framework to our example above, the charity receives less than $10,000 in public money (so the corporation is non-soliciting) and its annual gross revenues are less than $1 million (so the corporation is only required to conduct a review engagement). This demonstrates that just because the corporation solicits funds from the public and has assets in excess of $1 million, does not mean it will be soliciting and require an audit under the CNCA. Given the difference in cost between an audit and review engagement, not to mention that there are other requirements imposed on soliciting corporations, careful attention should be paid to applying the definition of soliciting corporation correctly.
In conclusion, we are finding that the use of the term soliciting to classify corporations is causing some confusion in the sector. If you are having trouble applying the definition of soliciting corporation to the circumstances of your organization, we advise that you consult a lawyer.