On November 14, 2017, the Ontario government gave Royal Assent to Bill 154, the Cutting Unnecessary Red Tape Act, 2017 ("Bill 154").

Among other changes (see our previous bulletins: Ontario's Not-for-Profit Sector Will Soon See Changes to the Corporations Act and Not-For-Profit Corporations Act and Update: Changes Affecting Ontario's Not-for-Profit Sector Come into Effect), Bill 154 amends the Charities Accounting Act to give Ontario charities more latitude to make social investments. The term 'social investment' refers to an investment that is made to directly further the purposes of the charity and to achieve a financial return. Many in the charities sector are familiar with the concept, which is sometimes also referred to as social impact investing or mission-related investing.


As a general rule, directors or trustees of charities in Ontario must invest in accordance with the prudent investment standard—that is, a director or trustee must exercise the "care, skill, diligence and judgment that a prudent investor would exercise in making investments". The Trustee Act requires that investment portfolios be appropriately diversified and that various criteria be considered before making investments.

Even before the recent amendments, the general consensus has been that most charities could make investments with a dual purpose of financial return and furthering a charity's purpose(s). However, there was some residual uncertainty about how the prudent investor standard should be applied to social investments. As such, the clarifications in Bill 154 are welcome.

New Social Investment Standards

The new sections in the Charities Accounting Act provide that directors and trustees of charities can generally make social investments, unless limited or excluded from doing so by the charity's governing documents. Where the funds in question are subject to a limitation on capital being expended (i.e. endowment funds), the director or trustee must "[expect] that making the social investment will not contravene the limitation or the terms of trust allow for such an investment".

As noted above, a social investment combines the aims of financial return and furthering one or more of the charity's charitable purpose(s). A social investment will be considered to achieve a financial return "if the outcome in respect of the trust property is better for the trust in financial terms than expending all the property." This means that, at least as far as the provincial rules are concerned, a social investment does not need to be made with the expectation of a market-rate return. At the same time, registered charities will need to continue to be mindful of the Canada Revenue Agency's restrictions on non-fair market value transactions with non-qualified donees (see below).

When an investment is a "social investment", most of the usual prudent investor standards and criteria in the Trustee Act will not apply. Instead, directors or trustees who make social investments will be subject to the following duties under the Charities Accounting Act (which cannot be restricted or excluded):

  • before making the investment, they must be satisfied that the social investment is in the best interests of the charity;
  • before making the investment, they must seek advice if needed; and
  • after making the investment, they must review the investment from time to time and seek advice in relation to such reviews as required.

The new sections provide that a director or trustee will not be liable for a loss arising from a social investment if, in doing so, the director or trustee acted honestly and in good faith in accordance with applicable requirements of the Charities Accounting Act and the governing documents of the charity. The sections also confirm that it is not a breach of trust for a director or trustee to rely on advice obtained in accordance with the above-mentioned requirements.

It is important to note that the changes do not affect the requirements under the Income Tax Act (Canada) that registered charities only use their resources:

  • to make gifts or grants to qualified donees (including other registered charities); or
  • for their own charitable activities.

The position of the Canada Revenue Agency (the "CRA") is generally that registered charities cannot make investments on below-market terms in non-qualified donees (e.g. a below-market rate loan), because such arrangements can effectively confer a 'gift' or other undue private benefit to the person or entity that is receiving the investment. It is somewhat unclear how the Ontario and federal regimes will work together, and further guidance from the Ontario Public Guardian and Trustee (and CRA) would be helpful in this regard. For now, it seems that registered charities will still likely need to ensure that terms are 'market' unless the social investment is made with a qualified donee or is structured as a "program-related investment" consistent with CRA's requirements.[1]


The amendments introduced by Bill 154 are part of a broader trend to support more innovative methods of advancing charitable and other social good aims, including through social enterprise and social finance. The Charities Accounting Act amendments are very similar to changes made in 2016 through the Charities (Protection and Social Investment) Act 2016 to permit social investments by UK charity trustees.

Prior to Bill 154, it was generally accepted that social investing could, in many cases, be carried out while still meeting the usual investment standards of the Trustee Act. Still, it is a welcome development to see this perspective confirmed (and potentially expanded) in statute. With a somewhat clearer legal framework, Ontario charities may be more inclined to consider including social investments in their investment portfolios in the future.