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Charities Directors – Duties and Responsibilities
7-16-2014
Under the ITA, a charitable organization is an organization, whether or not incorporated, which devotes all of its resources to charitable activities carried on by the organization itself. In addition, no part of its income may be payable to or otherwise available for the personal benefit of a proprietor, member, shareholder, trustee or settlor of the charitable organization.
There are clear tax advantages for obtaining charitable status, the primary ones being that a registered charity does not pay tax on income or capital gains and has the ability to issue charitable receipts to individual donors as tax credits, and to corporate donors as tax deductions, for income tax purposes.
Boards of directors may be designated by any name: trustees, regents, directors, or council. But regardless of the name, if management of the nonprofit is placed on the board, the board has legal and ethical duties that cannot be delegated to others. The board must follow the fiduciary duties of care, loyalty, and obedience to the nonprofit organization.
Directors are required to perform their duties in good faith, with ordinary care, and in the best interest of the nonprofit.
*Good faith is shown by honesty and faithfulness to duties and obligations.
*Ordinary care is the use of good judgment and common sense. It means doing what an ordinarily prudent person in a similar position would do under similar circumstances.
Ordinary care may differ from director to director based on their background and experience and the role they play in the organization.
*A director acts in the best interest of the charity if the director reasonably believes that the action will benefit the charity. Doing what is in the best interest of the charity means being loyal to the organization – it means the charity’s interest prevails over the director’s personal or business interest. Doing what is in the best interest of the charity means that directors are obedient to the “laws” of that charity, which include adhering to the Articles of Incorporation (or Certificate of Formation), bylaws, tax-exempt status, and faithfully following its mission and purpose. As always, it means that directors follows all laws applying to the charity – federal and provincial laws and regulations.
Decision makers of nonprofit corporations that engage in ongoing operations should understand that their duty of care goes beyond financial or business decisions to reach all decisions made in the course or scope of their duties as directors.
Footnotes: Footnotes: This column is presented as a general source of information only and is not intended as a solicitation for business. It is always recommended that you consult a qualified tax professional before embarking on any of the suggestions outlined above. Mohammed Yasin, CGA, is the principal of M. Yasin & Co. Inc., Certified General Accountants and has offices in Vancouver & Surrey,B.C. He is also A Member of Muslim Business Council of B.C. For more information on this topic or any other taxation matte
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