Don't Overlook Some Financial Impacts of the NFP Act

To date we have written extensively about the impacts that the NFP Act will have on membership classes and board structures. These are the main issues that NSOs and MSOs will need to address in order to become compliant with the NFP Act by 2014. However, there are many other seemingly smaller changes that organizations will have to consider as they transition to the new regime, and we thought it would be helpful to share some of them.

Having just attended the Rowing Canada Aviron AGM for the 2011 year (held in January of 2012) it has become apparent to me that many summer sports will have to rethink the timing of the membership meeting. Section 160(1) of the Act, read in conjunction with Section 61(2) of the Regulation makes it clear that organizations must hold their AGM not only within a certain period of the last AGM but also within a certain period of time from the fiscal year end. The former Canada Corporations Act only stipulated that the AGM must be held within 15 months of the previous AGM. The new NFP Act requires this (although the window of time is 18 months, not 15 months), while also requiring that the AGM be held within six months of fiscal year end, which for the vast majority of NSOs and MSOs, is March 31st. (There are a few exceptions - Golf Canada, Alpine Canada Alpin, Canadian Colleges Athletic Association, Canadian Interuniversity Sport are some examples).

This means that AGMs cannot be held after September 30th. We know that many summer sport NSOs hold their AGMs after this date, due to the fact that the summer is a very busy time for their sport. Many summer sports have advised us that it may be difficult and impractical to organize an AGM before September 30th, particularly when the AGM is more than just a straightforward business meeting but is also a leadership development, recognition, advocacy and marketing event. It may be necessary for many summer sports to rethink the purpose and delivery of their AGM.

There is provision in the Act that an organization may apply to Industry Canada for relief from these requirements, but a case would have to be made that members are not prejudiced by any delay. As the underlying premise of the NFP Act is member empowerment, we have no real sense of how likely it is that an organization would be granted this relief.

Winter sports, and those NSOs or MSOs holding AGMs in June, don't get off the hook very easily either. A reading of Section 175(1) of the Act with Section 77 of the Regulation states that audited financial statements must be provided to the members no later than 21 days before the AGM. To hold an AGM before mid-June, audited statements must be ready by mid-May, which is a challenge when the fiscal year ends March 31st.  We know from experience that audited financial statements are often not ready until just before the members meeting. This will be a challenge for many NSOs and small MSOs, and will tax their administrative capacity.

Also on the financial front, not related to the NFP Act but a concurrent development, is that the Income Tax Act has now been revised to create different rules for former RCAAAs. In a nutshell, RCAAAs have until now enjoyed special status as charities, relieved of many of the disclosure and reporting rules that apply to mainstream charities. This special treatment has now ended. CAAAs (Canadian Amateur Athletic Associations), as they are now called, must follow the same rules as everyone else.

Also, and this is very significant from a governance perspective, their objects must be exclusively charitable as opposed to primarily charitable. Therefore, as part of the process of becoming compliant with the NFP Act, every NSO and MSO should ensure that their objects are clearly and exclusively charitable. This should not be a problem for most NSOs and MSOs, although organizations like Golf Canada, Canadian Curling Association and Skate Canada, which all manage large commercial properties, will need to do some finessing. The same might be true of the Canadian Olympic Committee.

Feel free to contact us at the Sport Law & Strategy Group if you have questions about the NFP Act, changes to the Income Tax Act, or the forthcoming corporations legislation in Ontario.

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