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REPORT THE LAW OF CHARITIES ONTARIO LAW REFORM COMMISSION VOLUME 2 Ontario Digitized by the Internet Archive in 2011 with funding from Osgoode Hall Law School and Law Commission of Ontario http://www.archive.org/details/reportonlawofcha02onta REPORT ON THE LAW OF CHARITIES ONTARIO LAW REFORM COMMISSION VOLUME 2 Ontario 1996 The Ontario Law Reform Commission was established by the Ontario Government in 1964 as an independent legal research institute. It was the first Law Reform Commission to be created in the Commonwealth. It recommends reform in statute law, common law, jurisprudence, judicial and quasi-judicial procedures, and in issues dealing with the administration ofjustice in Ontario. Commissioners John D. McCamus, MA, LLB, LLM, Chair Nathalie Des Rosiers, LLB, LLM* Sanda Rodgers, BA, LLB, BCL, LLM* Judge Vibert Lampkin, LLB, LLM* Counsel J.J. Morrison, BA (Hon), LLB, LLM, Senior Counsel Donald F. Bur, LLB, LLM, BCL, PhD Barbara Hendrickson, MA, LLB, LLM J. ChiefAdministrator Mary Lasica, BAA Secretaries Tina Afonso Cora Calixterio * These Commissioners served during the deliberations concerning this report. Their appointments expired, however, priorto its publication. The Commission's office is located on the Eleventh Floor at 720 Bay Street, Toronto, Ontario, Canada, M5G 2K1. Telephone (416) 326-4200. FAX (416) 326-4693. Canadian Cataloguing in Publication Data Ontario Law Reform Commission. ^ Reporton the lawofchaarities Includes bibliographical references. ISBN 0-7778-5947-5 1. Charity laws andlegislation-Ontario. I. Title. KEO704.C5057 1997 346.713'064 C97-964004-0 Ontario Law Reform Commission Ontario The Honourable Charles Harnick Attorney General for Ontario Dear Attorney: I have the honour to submit the Ontario Law Reform Commission's Report on the Law ofCharities. December, 1996 John D. McCamus Chair SUMMARY OF TABLE OF CONTENTS Page VOLUME 1 Preface xxv PART INTRODUCTION AND BACKGROUND I 1 Chapter 1 Introduction and Background 1 Chapter 2 Previous Studies 21 Chapter 3 Sources of Institutional Support and Prospects for Self-Governance 57 Chapter 4 Sources of Empirical Information on the Charity Sector in Canada: An Opportunity for Government 71 Chapter 5 Overview ofthe Charity Sector in Ontario 83 PART H PUBLIC POLICY AND THE CHARITY SECTOR 145 A Chapter 6 Working Definition of Charity 145 Chapter 7 The Legal Definition of Charity: The Current Approach and Proposals for Reform 159 Chapter 8 The Legal Definition of Charity: Specific Problems with the Current Definition and Proposals for Reform 185 Chapter 9 Policy Perspectives on the Charity Sector 229 m PART THE INCOME TAXACT: REFORMING THE PRIMARY REGIME OF SUPERVISION 249 A Chapter 10 Supervision of Charities by Revenue Canada: Brief History 249 Chapter 11 Supervision of Charities by Revenue Canada: Current Law 287 Chapter 12 Supervision of Charities by Revenue Canada: Proposals for Reform 333 VOLUME 2 PART IV THE CURRENT LAW OF ONTARIO AND PROPOSALS FOR REFORM 385 Chapter 13 The Charitable Purpose Trust 393 Chapter 14 The Purpose Trust: Should It Be Extended to Non-Charitable Purposes 435 [v] VI Chapter 15 The Nonprofit Corporation: Current Law and Proposals for Reform 451 Chapter 16 The Unincorporated Association 507 Chapter 17 The Supervision of Charities 535 Chapter 18 Specific Areas of Regulatory Concern: Fundraising, Investments, Political Activity, and Privileges 569 Chapter 19 Current Government Granting Practices and Systems of Accountability 611 Summary of Recommendations 625 Appendices 637 . DETAILED TABLE OF CONTENTS Page VOLUME 2 PART IV THE CURRENT LAW OF ONTARIO AND PROPOSALS FOR REFORM 385 1. Introduction 385 2. Reforming Organizational Law 388 , 3. Provincial Supervision ofthe Nonprofit Sector 390 CHAPTER THE CHARITABLE PURPOSE TRUST 13 393 1. Introduction 393 2. Definition and Attributes 395 (a) Introduction 395 (b) Exemption from the Application of the "Beneficiary Principle" 396 (c) Exemption from the Applicability of the Certainty Requirement 398 (i) The Scheme-Making Power of the Court 398 (ii) Interpretive Leniency in the Face of an Obvious Charitable Intention 400 (iii) Exemption from the Application of the Principle Against Delegation of Testamentary Powers 402 (d) Cy-pres Application of the Trust in the Face of an Initial Impossibility or Impracticability: Initial Cy-pres 402 (i) Meaning of the "Impracticable" and "Impossible" Test 404 (ii) The "General Charitable Intention" Requirement 405 (iii) The "Near as Possible" Requirement 406 (iv) Non-Charitable Purposes and Initial Cy-pres 406 (e) Exemption from the Rule Against Remoteness of Vesting 407 (f) Exemption from the Rule Against Indestructible Trusts 413 Conclusion 414 (g) 3 Formation and Entry 415 (a) Introduction 415 [vii] . 1 Vlll (b) The Exclusively Charitable Condition: Imperfect Trust Provisions 415 (c) Status Registration 417 4. Governance 418 (a) Introduction 418 (b) Trustee's Duty of Care: Sections 4 and 7 ofthe Draft Bill 419 (c) Power to Delegate Tasks: Sections 5, 6, 7, and 8 ofthe Draft Bill 420 (d) Trustee's Duty of Loyalty 420 (i) Conflicts of Interest and Duty: Sections 9, 10, and 12 ofthe Draft Bill 420 (ii) Reimbursement of Expenses and Remuneration: Sections 11, 35(p), 71, 72, and 73 423 (e) Unanimity and the Number of Trustees: Sections 13, 15, and 18 ofthe Draft Bill 424 (i) Maximum Number of Trustees 424 (ii) Minimum Number of Trustees 424 (f) Powers of Beneficiaries: Sections 14, 15, and 16 ofthe Draft Bill 425 (g) Appointment and Discharge of Trustees: Sections 19 to 33 of the Draft Bill 425 (h) Investments: Section 34 ofthe Draft Bill 426 (i) Administrative Powers of Trustees: Section 35 ofthe Draft Bill 426 (j) Passing Accounts: Section 36 ofthe Draft Bill 427 (k) Allocation ofReceipts and Outgoings Between Income and Capital Beneficiaries: Sections 37 to 43 of the Draft Bill 427 (1) Dispositive Powers of Trustees: Sections 44 to 52 of the Draft Bill 428 (m) Contribution and Indemnity Among Trustees: Sections 53, 54, and 55 ofthe Draft Bill 428 (n) Court Powers, Not Including the Power to Vary the Terms ofthe Trust and Not Including Issues Relating to the Compensation of Trustees: Sections 56 to 62, 68 to 70, and 74 ofthe Draft Bill 428 (o) Books and Records 428 5 Reorganization and Dissolution 428 (a) Ownership ofthe Capital 430 (b) The Disponer's Intention 43 (c) Solutions 431