Running a registered charity in Canada comes with serious legal responsibility.
Trustees and directors are at the apex of every charity. Every decision flows through them. Make the right decisions and your charity will flourish. Make the wrong decisions and the CRA can strip your charity of its charitable status, freeze its assets and hold board members personally liable.
Here’s the thing…
Many trustees don’t know what they’ve gotten themselves into. This handbook explains the legal responsibilities every charity trustee and director should understand – including fiduciary duties and compliance requirements for qualified donees.
Let’s get into it.
What’s covered inside:
- Why Trustees Carry Real Legal Weight
- The Core Fiduciary Duties Explained
- Understanding Qualified Donees and Your Obligations
- Common Compliance Mistakes That Cost Charities Their Status
- Best Practices for Every Board Member
Why Trustees Carry Real Legal Weight
Canada has approximately 86,000 registered charities. Each registered charity is managed by a board of trustees or directors.
Board members aren’t just those who help make decisions for the charity. They are legally responsible for the charity’s activities. The CRA expects them to make sure the charity: (1) spends its resources only on charitable activities; (2) maintains proper books and records; and (3) only transfers money to qualified donees, where applicable.
Boards should know precisely what qualified donees are and how gift rules operate right from the application process. Visit what is a charity application checklist before you send anything to the CRA – it outlines qualified donee requirements and governance fundamentals that set new charities up for long-term success.
The stakes are literally millions of dollars. CRA data reveals 23 applications denied charitable registration during fiscal year 2024–2025. Many failed due to inadequate governance or activities that were too opaque. Boards should know those rules before forming.
The Core Fiduciary Duties Explained
Every charity trustee has a set of core fiduciary duties they must uphold.
These responsibilities are principles of good governance and apply to all trustees regardless of the size of the charity or how many millions of pounds are managed.
Here are the main ones:
Duty of Care – Directors must exercise the care an ordinary prudent person would by doing their homework when making decisions for the charity. This includes asking questions and making informed decisions.
Duty of Loyalty – Trustees should act in the best interests of the charity. No personal profit, conflict of interest or side agreements.
Duty of Obedience – The trustees should ensure the charity only conducts activities that further its purposes and that the charity complies with the law.
Simple enough on paper… However most breaches stem from directors under appreciating these obligations.
Understanding Qualified Donees and Your Obligations
This is where a lot of charities get tripped up.
Qualified donees are entities that are able to issue official donation receipts and are legally allowed to receive gifts from Canadian registered charities. They include:
- Other registered charities
- Registered Canadian amateur athletic associations
- Certain municipalities and universities
- The United Nations and its agencies
- A handful of other approved entities
Why should trustees care? Charities can ONLY give money to qualified donees. Period. Gifts to non-qualified donees are permitted in certain circumstances but stringent qualifying disbursement rules apply.
Where a board approves a grant to a non-qualified donee (or otherwise fails to comply with the rules governing those grants) the charity could be subject to:
- Loss of charitable status
- Financial penalties
- Personal liability for board members in serious cases
Directors should confirm that each donee is a qualified donee prior to approving any grant. Easy step, BIG responsibility if not done.
The CRA has a list of qualified donees published on their website. Directors should use that list as their starting point prior to any funds being disbursed.
Common Compliance Mistakes That Cost Charities Their Status
Even well-meaning boards make mistakes.
The issue is CRA does not provide leniency just because you made an error. They consider it non-compliance whether it was unintentional or not.
Here are the most common trip-ups:
Late or missing T3010 returns — Every registered charity is required to file a T3010 Registered Charity Information Return annually. If you miss filing your T3010 the charity may lose its registration.
Keeping poor records — Charities are required to keep accurate books and records that must contain detailed information about receipts and expenditure. They should keep records for a minimum of 6 years, such as minutes and financial statements.
Improper receipting — Issuing tax receipts for donations that aren’t eligible is a really quick way to lose status.
Political activity confusion — Charities may advocate on public policy issues, but they cannot participate in partisan political activity. Mess this up and you will have issues.
Failure to disclose conflicts of interest — Board members should declare personal or business interests that may interfere with the charity’s work.
Best Practices for Every Board Member
The best news? Operating within the confines of the law is entirely possible with boards that are committed to good governance.
Statistics Canada just released findings that 46.1% of nonprofits saw an increase in demand for services in 2023 — translating into boards feeling more pressure than ever to run lean and compliant.
Here’s what every board should be doing:
- Hold regular board meetings and document every decision with proper minutes
- Review the charity’s purposes and activities annually to ensure alignment
- Verify qualified donee status before approving any grants
- Provide onboarding training for all new trustees on their legal duties
- Consider directors and officers insurance to protect against personal liability
- Get legal advice when the situation is complex or unclear
Developing clear internal policies can help as well. Conflict of interest policies, whistleblower policies, and financial controls all work to keep the board out of trouble.
And when in doubt? Ask a lawyer.
Charity law is a niche field and it’s always less expensive to pay for advice before you get in trouble than after. Spending a few dollars on a lawyer now pales in comparison to losing your charitable status.
Final Thoughts
Being a charity trustee or director can be very rewarding. But it is also a position of real legal accountability.
The core takeaways:
- Understand the fiduciary duties of care, loyalty, and obedience
- Only transfer funds to qualified donees or through proper qualifying disbursements
- Stay on top of CRA compliance requirements including annual filings
- Document everything and keep good records
- Get legal advice when things get complicated
Charitable work has never been under more scrutiny. Boards that understand and act on their legal responsibilities will protect their mission, protect their organization and protect themselves. It really is that simple.
