Seven Legal Mistakes I See Ontario Churches Make

I have a soft spot for churches and the people who run them.

That’s hardly a surprise. I spent ten years as Director of Legal Affairs at the Canadian Centre for Christian Charities, helping churches and Christian charities across the country. Before that I was in-house counsel to a denomination for twelve years. I’ve sat in a lot of board meetings.

So I want churches to stay out of legal trouble. The less time a board spends on legal problems, the more time it has to carry out its mission.

Here’s what I’ve learned. Most legal trouble in religious organisations doesn’t come from bad intentions. It comes from good people running on old documents and informal habits. The board that gets into difficulty is almost never the careless one. It’s the busy one.

Below are the seven mistakes I see most often, and what to do about each.

1. Running on bylaws that no longer match the law

Ontario changed the rules for non-profit corporations when the Ontario Not-for-Profit Corporations Act came into force in 2021. Organisations had until October 2024 to bring their governing documents into line. That deadline has passed.

A great many churches never made the changes.

Most boards don’t realise the second half of that. The law doesn’t simply leave you non-compliant. Where your bylaws conflict with the Act, the conflicting provisions are treated as amended to match it, with some exceptions. Your governing document says one thing. The law says another. Nobody notices until it becomes an urgent issue.

Picture a board that wants to remove a director. The bylaws set out a process everyone has followed for twenty years. The board follows it again. Only afterward does someone point out that the Act now governs how directors are removed, and that the vote may not have been valid. Now the board has two problems: the original one, and a decision that can be challenged.

The same gap opens up around quorum, notice periods, member votes, and how directors are elected. These are exactly the provisions that get tested when a congregation is divided, which is exactly when you can’t afford uncertainty.

The fix isn’t complicated. Someone has to read your bylaws against the Act and mark every place they no longer agree. Most churches have somewhere between five and fifteen such places. Once you know what they are, you can decide which to fix now and which can wait for your next annual meeting.

2. Not knowing who your members actually are

In a church, the word “member” can mean two very different things.

There’s the congregation, meaning the people who worship with you, give, volunteer and consider this their church home. Then there are the legal members of the corporation, meaning the people entitled to vote at a meeting, elect directors and approve the decisions that require member approval.

Those two groups overlap, but they’re rarely identical. And many churches have never written down where the line falls.

It becomes an urgent issue when someone calls a special meeting, and the question arises: who was entitled to notice, who was entitled to vote, and was the meeting properly constituted? What happens if, on the night of a contested vote, nobody can produce a members list, and three different people have three different understandings of who belongs on it?

A few questions to settle while everything is calm:

• Are there classes of members, and do they have different voting rights? The Act has particular rules about non-voting members.
• What makes someone a member? Attendance, a signed declaration, a vote of the board, a period of regular giving?
• How does membership end, and who decides? Resignation, non-attendance, discipline?
• Who keeps the register, and when was it last updated?

None of that’s a theological question. It’s a corporate records question, and it’s much easier answered when things are going well, rather than when a problem arises.

3. Making decisions that never get written down

Directors of a charity carry legal duties. They must act honestly and in good faith, with the care a reasonably prudent person would bring, and in the best interests of the organisation.

Those aren’t abstract standards. They’re the standards a court applies if a director’s conduct is questioned, and the standard the Canada Revenue Agency has in mind when it reviews how a charity is governed.

Both expect a paper trail. Minutes, motions, conflict of interest disclosures. “We all agreed after the service” doesn’t meet the standard of quality records. It’s a memory, and memories almost inevitably diverge on the details.

Consider what good minutes protect. If a decision is later questioned, the minutes are what show the board turned its mind to the question, considered the relevant facts, and acted in the organisation’s interest. A director who did that is in a strong position. A director who did that and can’t prove it’s in a much weaker one.

Three habits cover most of the risk:

• Write minutes that record what was decided and why, not just that a motion carried. Two sentences of reasoning is usually enough.
• Record conflicts of interest when they arise, including that the conflicted director left the room and didn’t vote.
• Keep the minute book current and in one place. A folder on a departed secretary’s laptop isn’t a minute book.

Good minutes aren’t bureaucracy. They protect the church and the volunteers who serve.

4. Holding property in trust without realising it

Church property is often subject to conditions that nobody currently on the board has read.

Those conditions come from several directions. A donor’s stated purpose can bind a gift. A denomination’s constitution can hold the building for the wider church, whatever the deed says on its face. An old deed can carry a restriction written in a different century. And restricted gifts create obligations of their own: money given for a new building fund can’t simply be moved to the roof, however sensible that would be.

Picture a church that owns a strip of land beside its parking lot. The board decides to sell it and use the proceeds for repairs. The listing goes up, an offer comes in, and only in the closing search does someone discover the parcel was conveyed for worship use alone. The deal stalls. The repairs wait another year. And the congregation, who were told the money was coming, lost confidence in the board.

None of that was anyone’s fault. The restriction was seventy years old and the deed had not been read since.

There’s a further layer in Ontario. The Public Guardian and Trustee has oversight of charitable property, and some dealings require its attention. Denominational structures can add approvals of their own. A sale that looks like a simple transaction can involve three consents.

So do the digging early, before you list, before you borrow, and well before you sign anything.

• Pull the deed and read it, including anything referenced in it.
• Read what your denomination’s constitution says about who holds the property and on what terms.
• Keep a simple register of which funds and properties carry restrictions, and what those restrictions are.

A morning of reading now is worth a great deal at closing.

5. Issuing donation receipts the wrong way

Receipting is where good-hearted churches often stumble, and it’s the area where the consequences fall hardest, because the receipting privilege is the thing a charity can least afford to lose.

A few rules are worth emphasizing:

Gifts of time or services

You cannot issue a receipt for someone’s time or services. A contractor who does the work for free has made a generous gift, but not one you can receipt. However, there is a way to structure it properly, and it involves actual money moving.

Split receipting

If a donor receives something in return, a gala seat, an auction item, a dinner, you must subtract the value of what they received from the amount you receipt. Many churches receipt the full ticket price. That’s an incorrect receipt on every ticket sold.

Gifts of property

A gift in kind needs a fair market value, not a hopeful guess. Larger items may need an independent appraisal. If the value is wrong, the receipt is wrong. If you’re unsure, get an appraisal.

What the receipt must say

Every official receipt has required content, including your registration number and the Canada Revenue Agency’s website address. Receipts generated by older software or by a well-meaning volunteer in a spreadsheet often omit something.

The stakes are worth stating clearly: Improper receipting can lead to penalties, suspension of your receipting privilege, or in serious cases revocation of your registration. Your annual T3010 filing is part of the same picture, because it’s where the Agency sees what you receipted and what you spent.

The good news is that receipting problems are usually systematic rather than occasional. Fix the template and the practice, and you fix everything that follows. When a question comes up, ask before you issue, not after.

6. Paying staff and clergy without the right paperwork

Churches are employers, even when the team is small and the pay is modest. That brings payroll, source deductions, employment standards, and eventually a record of employment into play.

The most expensive shortcut I see is treating someone as a contractor because it’s simpler. It usually is simpler, right up until the relationship ends badly or the Canada Revenue Agency takes a different view. Then the church can find itself responsible for deductions it never made, on income going back years, plus interest. The person’s own tax position may also be affected, which turns a legal problem into a pastoral one.

Whether someone is an employee or a contractor isn’t a matter of what the parties call it. It turns on the substance of the relationship: control, who supplies the tools, whether the person can subcontract, and who carries the risk of profit and loss.

Clergy have rules of their own. A minister may qualify for the clergy residence deduction, but the paperwork has to be right, and the church has a part to play in certifying it. It’s common to see a deduction that everyone assumed was in place turn out never to have been documented.

A few things to have in writing for every person you pay:

• A written agreement setting out role, hours, remuneration and how the arrangement ends.
• A clear position on employee versus contractor status.
• Payroll set up properly from the first payment, not corrected later.
• For clergy, the residence deduction documentation completed and kept with the file.

This protects your people as much as the organisation. A pastor with a proper agreement and correct payroll is a pastor whose family isn’t exposed if something goes wrong.

7. Drifting from the purposes you registered

A registered charity must devote its resources to its own charitable purposes. That sounds obvious. However, it’s not uncommon for “mission drift” to happen, one generous decision at a time, e.g. A community group needs somewhere to meet. A member is in difficulty. A worthy organisation overseas asks for help.

Each decision is defensible on its own. Taken together, over a few years, the organisation’s activities can stop matching the purposes in its governing documents.

A short purposes check once a year keeps activities and registration in step. Read your objects out loud at a board meeting and ask whether they still describe what you do.

Three more items, worth ten minutes

These don’t need a section each, but they do damage when neglected.

Screening volunteers who work with children and vulnerable people

This belongs on the list of things a board must be able to say it did. Police record checks where appropriate, a written policy, training, and a record showing the policy was followed. If a serious allegation ever arises, the first question will be what screening was in place. It’s also increasingly what insurers and denominations expect.

Insurance for a building the public uses

A church building hosts services, community groups, children’s programs and occasional rentals. Check that your coverage matches what actually happens in the building, including directors and officers coverage for the board itself.

Corporate filings

Annual returns and changes of directors have to be filed. Status can lapse quietly, and the discovery usually comes at the worst time, such as when a lender or a purchaser asks for proof of good standing.

A calm look is usually all it takes

None of this should discourage anyone from serving on a church board. I’ve written it because the fixes are almost always small when they’re caught early, and almost always expensive when they aren’t.

If you read the seven above and recognised your church in two or three of them, that’s normal. Most boards do. It doesn’t mean anything has gone wrong. It means the documents have fallen behind the practice, which happens to every organisation given enough time and enough dedicated volunteers.

Start with the bylaws, because the other six get easier once the governing document is sound.

If your church or Christian organisation would like a calm look at its bylaws, membership, property or receipting, I’d be glad to help. You can book a consultation here, or download our free ONCA Compliance Checklist and start on your own. Either way, the first conversation costs you nothing but the time.

Note: For a broader look at ONCA and religious organisations, see “How ONCA Affects Your Faith-Based Charity” and our faith-based charities page.

Barry W. Bussey, Ph.D. (Leiden), LL.M. (Osgoode), has appeared before the Supreme Court of Canada five times and served for ten years as Director of Legal Affairs at the Canadian Centre for Christian Charities, the national association for Canada’s Christian charity sector. He practises charity, non-profit, real estate, and estate law in Peterborough with Bussey Ainsworth.

This article is for general information only and does not constitute legal advice. Every situation is unique. Please consult with a lawyer before making decisions about your organisation’s governance or compliance.