What Are Soliciting Corporations Under Canada's NFP Act?
Running a charity or nonprofit in Canada comes with important legal responsibilities. One of the most crucial distinctions organizations need to understand is whether they're classified as a "soliciting corporation" under the Canada Not-for-Profit Corporations Act (NFP Act).
This classification isn't just bureaucratic paperwork. It determines how much transparency an organization must provide, what reporting requirements apply, and how much public accountability is expected.
The difference between soliciting and non-soliciting status can significantly impact an organization's operations, compliance costs, and legal obligations. Understanding which category applies helps nonprofits plan effectively and avoid costly compliance issues.
This guide explains everything Canadian charities and nonprofits need to know about soliciting corporations, including the $10,000 threshold, what counts as public funding, and why this distinction matters.
Understanding Soliciting Corporations: The $10,000 Threshold
The soliciting corporation classification hinges on a simple number: $10,000. However, understanding how this threshold works requires looking at specific funding sources and timeframes.
What Makes a Corporation "Soliciting"?
A corporation becomes "soliciting" when it receives more than $10,000 from public sources in a single financial year. This threshold acts as a dividing line between organizations that require strict public oversight and those that can operate with more flexibility.
The logic is straightforward. When an organization asks the public for money, the public deserves to know how those funds are used.
Organizations crossing this threshold essentially signal that they rely on community support. With that support comes responsibility for transparency and accountability.
Key factors that define soliciting status:
- Total public source income exceeds $10,000 annually
- Calculation includes donations, government grants, and certain corporate funding
- Status applies once the threshold is crossed in any financial year
- Higher compliance standards take effect immediately
The Three-Year Rule
The NFP Act doesn't just look at the current year when determining soliciting status. It examines the previous three financial years as well.
This means one quiet fundraising year won't automatically change an organization's classification. If a nonprofit received significant public funding in the previous three years, it likely remains a soliciting corporation.
For example, consider a charity that received these amounts from public sources:
- Year 1: $15,000
- Year 2: $8,000
- Year 3: $6,000
- Year 4 (current): $5,000
Even though Years 2, 3, and 4 fell below $10,000, Year 1 still affects the organization's status. Organizations need to track public funding over multiple years to accurately assess their classification.
This rolling calculation helps prevent organizations from manipulating their status by temporarily reducing public fundraising.
What Counts as Public Sources of Income?
Not all income affects soliciting status. The NFP Act specifies exactly which funding sources count toward the $10,000 threshold.
Donations and Gifts from the General Public
Public donations are the most common type of income that contributes to soliciting status. These are contributions from individuals who aren't part of the organization's inner circle.
Who counts as "general public" donors:
- Community members with no organizational connection
- Anonymous donors
- First-time contributors
- Regular supporters outside the organization's leadership
Who doesn't count:
- Current members of the organization
- Directors and officers
- Employees and staff
- Immediate family members of any of the above
Consider a local animal shelter that runs a year-end fundraising campaign. If 30 community members each donate $400, the shelter receives $12,000 from the general public. This pushes the organization over the threshold into soliciting status.
Even small donations add up quickly. Twenty donors giving $600 each totals $12,000. The threshold can be crossed faster than many organizations realize.
Government Grants and Funding
Any financial support from government sources counts toward the soliciting threshold. This includes all levels of government in Canada.
Federal government funding:
- Health Canada grants
- Canadian Heritage funding
- Employment and Social Development Canada programs
- Innovation, Science and Economic Development Canada support
Provincial and territorial funding:
- Ministry grants (health, education, social services)
- Provincial arts councils
- Regional development programs
- Skills training funding
Municipal funding:
- City community grants
- Local arts and culture support
- Neighborhood improvement programs
- Recreation facility funding
A youth organization might receive a $6,000 grant from their provincial ministry of education and $5,000 in public donations. The combined $11,000 from public sources makes them a soliciting corporation, even though each funding stream individually stayed below the threshold.
Funds from Other Corporations
This category is more complex but equally important. Money received from another corporation can count toward soliciting status under specific conditions.
The key question: Has the donating corporation itself received significant public funding?
If a corporation that received more than $10,000 from public sources donates to another organization, that donation counts as public funding for the recipient.
Example scenario:
A large established charity receives $500,000 in government grants and public donations annually. This charity then provides a $9,000 grant to a smaller grassroots organization.
For the smaller organization, that $9,000 counts as public funding because it originated from a soliciting corporation. If the grassroots group also receives $2,000 in direct public donations, they're now over the threshold at $11,000 total.
This rule prevents organizations from using intermediaries to avoid soliciting status. It ensures proper accountability throughout the charitable sector.
What is a Non-Soliciting Corporation?
Non-soliciting corporations operate on the other side of the $10,000 threshold. These organizations have more flexibility in their governance and reporting requirements.
Staying Below the Public Funding Radar
A non-soliciting corporation receives less than $10,000 from public sources. More specifically, it must have stayed below this threshold for the current year and the previous three financial years.
These organizations typically operate on a smaller scale or fund themselves through private sources. Their limited public funding means they face fewer regulatory requirements.
The government's reasoning is practical. Organizations that don't rely on public money don't need the same level of public oversight.
Characteristics of non-soliciting corporations:
- Annual public funding under $10,000
- Primarily private or internal funding sources
- Smaller operational scale in many cases
- Reduced reporting requirements
Common Funding Sources for Non-Soliciting Organizations
Non-soliciting corporations fund their operations through sources that don't count as "public" under the NFP Act.
Membership fees and dues:
A small professional association with 50 members might charge $150 annual dues. The $7,500 total from member fees doesn't count toward the soliciting threshold because members are part of the organization's internal structure.
Private donations from insiders:
Donations from directors, officers, employees, and their immediate families don't count as public funding. A small foundation funded entirely by its three founding board members and their spouses can receive substantial donations without becoming soliciting.
Business income:
Revenue from selling goods or services doesn't count as public funding. A small arts organization that generates $20,000 selling artwork created by members remains non-soliciting if it receives minimal public donations.
Investment income:
Returns on investments, interest, and dividends don't affect soliciting status. A nonprofit with a small endowment can earn investment income without triggering higher reporting requirements.
Private foundation grants:
Funding from private foundations that are themselves non-soliciting doesn't count. A family foundation that gives a $15,000 grant to a community organization won't affect the recipient's status if the foundation operates entirely on private family contributions.
Key Differences Between Soliciting and Non-Soliciting Corporations
The soliciting classification creates a two-tier system in Canadian nonprofit law. Each tier comes with distinct obligations and expectations.
Comparison Chart: Soliciting vs. Non-Soliciting Corporations
Reporting Requirements
Soliciting corporations face comprehensive financial reporting obligations. They must prepare financial statements that meet specific professional standards.:
The level of financial review required depends on the organization's annual revenue:
Under $50,000 in revenue:
- Review Engagement required (can be waived by members)
- Least intensive level of professional review
- Accountant performs limited procedures
$50,000 to $250,000 in revenue:
- Audit required by default
- Can be downgraded to Review Engagement if members agree
- More thorough examination than review engagement
Over $250,000 in revenue:
- Mandatory Audit (cannot be waived)
- Most comprehensive level of assurance
- Accountant examines financial records in detail
- Provides highest level of confidence to stakeholders
These statements must be made available to members and, in many cases, to the general public. Transparency is the cornerstone of soliciting corporation requirements.
Non-soliciting corporations have more flexibility. They may only need compilation financial statements or internal reports. Public disclosure requirements are minimal.
Compliance and Accountability Standards
Soliciting corporations operate under heightened governance expectations. Board members have enhanced fiduciary duties and oversight responsibilities.
The NFP Act requires soliciting corporations to maintain detailed records, follow specific meeting procedures, and implement robust financial controls.
Board composition requirements: Soliciting corporations must have a minimum of three directors at all times. This ensures adequate oversight and prevents concentration of control in too few hands.
Enhanced requirements for soliciting corporations:
- Minimum of three directors
- Mandatory annual meetings with proper notice
- Detailed minute-keeping for board decisions
- Regular financial reviews by the board
- Conflict of interest policies
- Financial signing authority protocols
Non-soliciting corporations still have governance obligations but with more flexibility in implementation. They can adapt procedures to their organization's size and complexity.
Penalties for Non-Compliance
The NFP Act imposes steeper penalties on soliciting corporations that fail to meet their obligations.
This reflects the principle that organizations handling public money must be held to higher standards. Non-compliance can result in significant fines, director liability, and potential loss of corporate status.
Non-soliciting corporations face penalties too, but generally at lower levels. The government recognizes that these organizations pose less public risk.
Why Does This Classification Matter for Your Organization?
Understanding soliciting status isn't just about legal compliance. It affects strategic planning, fundraising decisions, and organizational sustainability.
Transparency and Public Trust
Public trust is the foundation of successful charitable fundraising. Donors want assurance that their contributions make a real difference.
Soliciting corporation requirements exist specifically to build and maintain this trust. When organizations demonstrate transparency through proper reporting, donors feel confident in their support.
Organizations that embrace these standards, even when challenging, often see stronger donor relationships. Transparency becomes a competitive advantage rather than a burden.
The charitable sector as a whole benefits when soliciting corporations maintain high standards. Public confidence in nonprofits increases when accountability is visible and enforced.
Legal Compliance and Risk Management
Misunderstanding soliciting status can lead to serious compliance problems. Organizations that don't realize they're soliciting may fail to meet required standards.
The penalties for non-compliance extend beyond fines. Directors can face personal liability for governance failures. The organization's reputation can suffer lasting damage.
Risks of non-compliance:
- Financial penalties and fines
- Director and officer liability
- Loss of charitable registration
- Reputational damage
- Donor confidence erosion
- Increased regulatory scrutiny
Proper classification helps organizations implement appropriate systems from the start. This prevents costly corrections and compliance catch-up later.
Planning Your Fundraising Strategy
Organizations approaching the $10,000 threshold face an important strategic decision. Crossing into soliciting status means higher compliance costs but potentially greater fundraising capacity.
Some organizations intentionally stay below the threshold to avoid additional requirements. They limit public fundraising and focus on private sources instead.
Others embrace soliciting status as part of a growth strategy. They plan for the additional compliance costs while pursuing larger fundraising opportunities.
Strategic considerations:
- Current and projected fundraising capacity
- Administrative resources for enhanced compliance
- Long-term organizational growth plans
- Donor expectations for transparency
- Competitive positioning in the charitable sector
Neither approach is inherently better. The right choice depends on the organization's mission, capacity, and goals.
How to Determine Your Corporation's Status
Accurate status determination requires careful analysis of funding sources and timing. Organizations should review their classification regularly.
Step-by-Step Assessment Process
Step 1: Identify all revenue sources
List every source of income for the current financial year and the previous three years. Include donations, grants, fees, sales, and investment income.
Step 2: Categorize each revenue source
Determine which income sources count as "public" under the NFP Act. Separate public donations, government grants, and qualifying corporate donations from private funding.
Step 3: Calculate annual public funding totals
Add up all public source income for each of the four years being examined. Remember that even one year over $10,000 affects current status.
Step 4: Review the three-year lookback
Determine whether any of the past three years exceeded the threshold. If so, soliciting status likely applies regardless of current-year totals.
Step 5: Document your determination
Keep detailed records of the analysis. This documentation helps demonstrate proper classification if questions arise later.
Step 6: Implement appropriate compliance measures
Once status is determined, ensure the organization meets all applicable requirements. This may mean upgrading financial reporting, enhancing governance, or improving record-keeping.
When to Seek Professional Guidance
Some situations are straightforward. A small organization receiving $500 in public donations clearly qualifies as non-soliciting.
Other scenarios involve complexity that warrants professional legal advice.
Situations requiring expert consultation:
- Organizations near the $10,000 threshold with mixed funding
- Receipt of grants from corporations with unclear public funding status
- Transitioning from non-soliciting to soliciting status
- International funding sources
- Complex partnership or fiscal sponsorship arrangements
- Historical misclassification discovered during review
Charity lawyers specialize in NFP Act requirements and can provide precise guidance. The cost of professional advice is minimal compared to potential penalties for misclassification.
Compliance Requirements for Soliciting Corporations
Once an organization knows it's a soliciting corporation, meeting ongoing obligations becomes essential. These requirements ensure public accountability and organizational health.
Essential Obligations Under the NFP Act
Annual financial statement preparation:
Soliciting corporations must prepare financial statements that comply with Canadian accounting standards. The level of assurance required depends on annual revenue:
- Under $50,000: Review Engagement (waivable by members)
- $50,000–$250,000: Audit required (waivable to Review Engagement with member approval)
- Over $250,000: Mandatory Audit (cannot be waived)
Statements must be completed within six months of the fiscal year-end. They must be presented to members at the annual meeting.
Public disclosure:
Financial statements must be made available to any member who requests them. In many cases, organizations post statements on their websites for easy public access.
This transparency allows donors and stakeholders to evaluate the organization's financial health and stewardship.
Governance and board responsibilities:
Boards of soliciting corporations have enhanced oversight duties. Directors must approve financial statements, review organizational performance, and ensure compliance with legal requirements.
Soliciting corporations must maintain a minimum of three directors at all times. This ensures adequate oversight and decision-making capacity.
Regular board meetings with proper documentation are mandatory. Directors need adequate information to fulfill their fiduciary duties.
Record-keeping standards:
Soliciting corporations must maintain detailed records of financial transactions, board decisions, and member communications. These records must be kept for specified periods and made available for inspection when required.
Annual filings with Corporations Canada:
Soliciting corporations must file annual returns with Corporations Canada along with their financial statements. These filings and financial statements become part of the public record, which anyone can access. This public availability reinforces the transparency requirements for organizations that receive public funding.
The annual return confirms the corporation remains active and provides updated information about directors and registered office location.
Maintaining Good Standing
Ongoing compliance requires systematic attention to requirements. Organizations benefit from implementing regular review processes.
Best practices for soliciting corporations:
- Create annual compliance calendars with all deadlines
- Assign clear responsibility for each compliance requirement
- Conduct quarterly board reviews of financial statements
- Maintain organized records with logical filing systems
- Stay informed about regulatory changes
- Budget appropriately for audit and professional fees (especially for mandatory audits over $250,000)
- Train board members on their governance obligations
- Ensure board composition meets the minimum three-director requirement
Organizations that treat compliance as an ongoing priority rather than an annual scramble tend to have fewer problems. Building strong systems pays dividends in reduced stress and better organizational management.
Conclusion
Understanding whether your organization qualifies as a soliciting or non-soliciting corporation is essential for legal compliance and financial planning. The $10,000 threshold may seem straightforward, but properly calculating public funding sources and implementing the right compliance measures requires expertise. Many nonprofits discover too late that they've miscalculated their status, leading to penalties, increased costs, and damaged donor relationships.
B&H Charity Accounting Firm helps Canadian nonprofits navigate the Canada Not-for-Profit Corporations Act with confidence. Whether you're uncertain about your classification or need to implement proper financial reporting systems, our team provides expert guidance. Call us at (289) 301-8883 or visit charityaccountingfirm.ca for specialized nonprofit accounting support.
Schedule a FREE consultation to discuss your organization's specific situation. We'll review your funding sources, clarify your soliciting status, and ensure you meet all NFP Act requirements so you can focus on your mission.
Frequently Asked Questions
Here are answers to common questions about soliciting corporations under the Canada Not-for-Profit Corporations Act.
What is a soliciting corporation in Canada?
A soliciting corporation is a nonprofit that receives more than $10,000 from public sources in a single year. Public sources include donations from community members, government grants, and funding from other publicly funded corporations. Once an organization crosses this threshold, it must follow stricter reporting and accountability rules because it relies on public funding.
How is a soliciting corporation different from a non-soliciting corporation?
Soliciting corporations receive more than $10,000 from public sources and must prepare audited or reviewed financial statements based on revenue levels, make them publicly available, and follow stricter governance rules including maintaining a minimum of three directors. Non-soliciting corporations stay under the $10,000 threshold and have more flexibility with simpler financial statements and fewer public disclosure requirements. They typically fund themselves through member fees, private donations from board members, or business income.
What extra requirements apply to soliciting corporations?
Soliciting corporations must prepare professional financial statements that meet Canadian accounting standards. Organizations with revenue under $50,000 need review engagements (waivable), those with $50,000–$250,000 need audits (waivable to reviews), and those over $250,000 require mandatory audits. They must file these statements with Corporations Canada where they become public record. Their boards need a minimum of three directors with enhanced oversight through regular meetings, detailed minutes, strong financial controls, and conflict of interest policies. Penalties for non-compliance are also higher because they handle public money.
When do the soliciting corporation rules start and stop?
The rules take effect immediately once an organization receives more than $10,000 from public sources in any year. The classification looks back over three years, so exceeding the threshold in any of the previous three years means the organization likely remains soliciting. An organization only returns to non-soliciting status after staying below the threshold for three consecutive years.
Do soliciting corporations have to send financial statements to Corporations Canada?
Yes, soliciting corporations must file annual returns with Corporations Canada along with their complete financial statements. These financial statements become part of the public record and anyone can access them. This public filing requirement ensures transparency for organizations that receive public funding. Beyond this mandatory filing, organizations must also make statements available to members at annual meetings and provide them to anyone who requests them.
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