The Canada Not-for-Profit Corporations Act crunch

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If you’re a federally incorporated nonprofit or registered Canadian Amateur Athletic Association (RCAAA), then you’d best be aware of the following date: October 17, 2014. That’s the date the new Canada Not-for-Profit Corporations Act (CNCA) takes effect, replacing the old Canada Corporations Act (CCA).

For those who may have forgotten, the new CCNA came into force in 2011, but its application was deferred for three years to allow affected nonprofits time to switch over and prepare for the changes in legislation that governs them.

So what do you, as a federally incorporated nonprofit, need to know?

Transition...or else

The first and most important detail to note is that any nonprofit that fails to switchover may face dissolution. Mark Blumberg, charity law expert, partner at Blumbergs and author of the always info-packed globalphilanthropy.ca blog, puts it succinctly:

“Corporations that do not make the transition by the deadline will be assumed to be inactive and will be dissolved by Corporations Canada,” he says. “Industry Canada has indicated that the deadline will not be extended and that they will start sending out ‘Notices of Pending Dissolution’ in October.”

The Canada Revenue Agency (CRA) advises that to successfully make the transition, a nonprofit must apply for a certificate of continuance under the CNCA. Failing this, the CRA reminds sector institutions and executives that “once a registered charity’s or RCAAA's corporate status is dissolved, it ceases to exist as a legal entity and the Canada Revenue Agency will take steps to revoke its registration under the Income Tax Act.”

That said, Blumberg also notes that in an effort to remind those nonprofits still operating under the old CCA, Industry Canada recently added warnings in its correspondence with the heading “Governing legislation.” These warnings appear on all Federal Corporate Profile reports to existing CCA corporations still in need of completing the transition process.

A continuance/transition checklist is now available online from the CRA. In it, nonprofits will find reminders to submit an official Certificate of Continuance, Form 4031, (Articles of Continuance), a statement of current activities, a list of current directors and a copy of your current by-laws, certified by two directors with an effective date notification.

Mylène Croteau, spokesperson for the CRA adds a final word of caution for nonprofits who forget to or actively do not transition: “Once their registration is revoked, they will be subject to a tax on 100% of their assets. They will not be able to issue official donation receipts, and they will no longer qualify for exemption from tax under the Income Tax Act.”

Croteau provides the following link for more information on revocation.

According to Blumberg, Industry Canada intends to start dissolving those corporations who, as of Oct. 17, 2014, have not bothered to file their Form-3 annual summary in many years. His tip to any nonprofit looking to buy some small amount of time on this transition – at the very least, file your annual summary with Industry Canada with your correct address. Why?

“Industry Canada must send notices to the registered office and every director in order to be able to dissolve a CCA corporation. So if there are 8-10 directors on a typical nonprofit board, [the government] will have to send about 9-11 letters per nonprofit. If there are a lot of corporations who [still] have to transition, it will take [Industry Canada] longer because of the time involved in sending the notices and dealing with the responses,” Blumberg says.

It’s a small delay, but at least it’s something.

A century of change in the making

From a historical perspective, the new CNCA comes some 97 years after the old CCA was first introduced into law. It is, as then-Minister of State Diane Ablonczy stated in 2011, the “first significant modernization of Canada's not-for-profit legislation since 1917” and is intended to “promote accountability, transparency and good corporate governance.”

Basically, the CNCA has modernized federal nonprofit law to better reflect and achieve more flexibility for modern-day nonprofits. For a more detailed analysis of the changes, read CharityVillage’s initial 2011 report on the legislative refresh here.

Croteau asks that all federally incorporated nonprofits or RCAAA’s have a look through the select web pages dedicated to helping transition to the new model.

The CRA, she says, has taken multiple steps to assist registered charities and RCAAAs with this transition, including:

  • involvement in ongoing discussions with Corporations Canada;
  • developing a series of webpages that have been available since October 2011;
  • distributing notices via the Charities and giving – What’s new electronic mailing list; and
  • publishing articles in issues 9 and 11 of the Charities Connection Newsletters.

But it’s still up to you to take advantage of the info and act accordingly.

Time is running out.

As of April 14, there are only six months left before the deadline for transition and dissolution notifications are sent out to those who have yet to act. So get moving if you haven’t already.

“We encourage registered charities and RCAAAs currently incorporated under Part II of the Canada Corporations Act to apply for their certificate of continuance as soon as possible to avoid revocation,” Croteau says. “We also encourage them to go to the Transition to the Canada Not-for-profit Corporations Act (NFP Act) webpages on the CRA’s website, which include a checklist, questions and answers, and instructions that will assist them in completing the transition form.”

For even more information about the particulars of the CNCA, this Industry Canada website lays it all out. Particular attention should be given to the new rules regarding members of nonprofits and how voting rights are bestowed on them. This detail could have significant impact on corporations if the by-laws that govern them aren’t precisely detailed to determine which class of member has voting rights. It’s well worth your time to read and understand.

Andy Levy-Ajzenkopf is a professional writer living in Toronto. He can be reached at aajzenkopf@yahoo.com.

Photos (from top) via iStock.com. All photos used with permission.

Please note: While we ensure that all links and email addresses are accurate at their publishing date, the quick-changing nature of the web means that some links to other web sites and email addresses may no longer be accurate.

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