This policy sets out information about applying to the Director appointed under the Canada Not-for-profit Corporations Act (NFP Act) to deem the gross annual revenues (GAR) of a soliciting corporation to be equal to or less than a specific amount. It will help you determine:
- which of the three levels of financial review applies to your corporation;
- whether your corporation should apply to have its GAR deemed to be equal to or less than a specific amount; and
- the factors that the Director will consider when deciding whether or not it is appropriate to deem a corporation’s GAR to be equal to or less than a specific amount.
This policy is intended to provide information and set out guidelines. It is not intended to be a binding statement of the decision that will be made in any particular case, especially if the decision would be incompatible with the interests of the public generally. It is also not intended to replace legal advice. You may wish to consult a lawyer or other professional advisor to ensure that your specific needs are taken into consideration when making an application.
November 17, 2011
A soliciting corporation receives significant sums of money or property from the public. To safeguard this public money, the NFP Act imposes five additional requirements on a soliciting corporation. These requirements are important because they:
- ensure that a corporation that receives money from the public maintains a higher standard of corporate accountability;
- ensure transparency and disclosure; and
- give the public the confidence to continue to fund these corporations.
One of the requirements relates to financial review. There are three different levels of financial review. A soliciting corporation falls into one of the three levels based on its GAR. The following chart summarizes the three levels of financial review. For more information about the different types of financial review (e.g., audit, review engagement or compilation), consult the overview in Financial Statements and Review.
|Gross Annual Revenues (GAR)||Level||Requirements|
|Equal to or less than $50,000||Level 1||
If a PA is not appointed, only a compilation is required.
|Between $50,000 and $250,000||Level 2||Audit is required but members can vote by 2/3 majority to have a review engagement instead.|
|Over $250,000||Level 3||Audit is required.|
There may be some situations where a soliciting corporation may seek to have a lower level of financial review. In these particular cases, the corporation can apply under the NFP Act for a decision to deem its GAR to be equal to or less than a specific amountFootnote 3. The Director has the power to deem the GAR to be equal to or less than a specific amount as long as it would not be prejudicial to the public interest. If its GAR are deemed by the Director, a corporation has to meet the level of financial review that corresponds with its deemed GAR.
Regardless of whether its GAR are deemed or not, a corporation is always required to annually prepare and provide members with financial statementsFootnote 4.
Considering whether to make an application
Why would a soliciting corporation apply to have its GAR deemed to be equal to or less than a specific amount?
If its GAR are deemed to be equal to or less than an amount lower than its actual GAR, a soliciting corporation would have to meet a lower level of financial review than it would have had to otherwise.
Example: A soliciting corporation has GAR of $100,000 in a financial year and must meet the Level 2 requirements. It must have its financial statements audited unless members vote by two-thirds majority to have a review engagement instead. The corporation can apply to the Director to be deemed to have GAR of less than $50,000 for that financial year. If granted, the corporation would have to meet the Level 1 requirements. It could have a review engagement or a compilation for that financial year, depending on whether a PA was appointed or not.
Example: A soliciting corporation has GAR of $500,000 in a financial year and must meet the Level 3 requirements. It must have its financial statements audited. The corporation can apply to the Director to be deemed to have GAR of between $50,000 and $250,000 for that financial year. If granted, the corporation would have to meet the Level 2 requirements. It must have its financial statements audited unless members vote by two-thirds majority to have a review engagement for that financial year instead.
It is not appropriate to seek a decision to have deemed GAR if a corporation also wants relief from all of the other requirements imposed on a soliciting corporation. A corporation that wants relief from all five of the additional requirements imposed on a soliciting corporation should apply for a decision to be deemed non-soliciting under subsection 2(6) of the NFP ActFootnote 5.
When can a corporation apply?
A corporation must apply at least 60 days before the corporation’s annual financial statements are to be placed before members at its annual meeting. The Director can extend the time for making an application as long as it would not be prejudicial to the public interestFootnote 6.
How long will a decision to deem the GAR of a soliciting corporation be effective?
If granted, the Director’s decision to deem a soliciting corporation’s GAR a specific amount will be effective for one financial year only with no renewals.
On the application of a soliciting corporation, the Director may, on any terms that the Director thinks fit, deem the corporation to have GAR equal to or less than $50,000 or GAR equal to or less than $250,000 if doing so would not be prejudicial to the public interest.
Test to be applied by the director
Since the requirements regarding financial review are meant to protect the public interest, the GAR of a soliciting corporation will only be deemed equal to or less than a specific amount if the Director is satisfied that the decision would not prejudice the public interest. In reviewing an application for deemed GAR, the Director will assess the potential for prejudice to any and all potential stakeholders. Essentially, the question the Director will ask is:
- Would the persons or groups who would ordinarily benefit from the level of financial review imposed on a soliciting corporation be prejudiced if that level was lowered for that financial year?
An application for deemed GAR must clearly set out which persons or groups normally benefit from the requirements and why those persons or groups will not be adversely affected by lowering the level of those requirements.
Factors the director will consider
The Director will consider making a decision to deem a soliciting corporation’s GAR to a specific amount in cases where there is little or no prejudice to stakeholders because:
- a corporation has had unusually high GAR in one financial year and is required to meet a higher level of requirements for financial review than usual; AND
- adhering to the higher level of requirements for financial review would provide no benefit to stakeholders.