The Canadian Charity Law Podcast | The Hidden Costs of Using General Lawyers for Charity Law Legal Matters: Why Specialization Matters

The episode argues for the critical importance of specialized legal counsel for Canadian charities. It highlights the complex nature of charity law, which involves multiple regulatory frameworks and unique legal concepts not found in general corporate law.

The discussion emphasizes that specialized charity lawyers offer significant advantages in navigating CRA compliance, achieving higher success rates for registrations, and providing long-term support.

Ultimately, engaging a charity law specialist is presented as a cost-effective investment that prevents costly mistakes, manages risks, and enables an organization's mission and growth.

This episode is jointly sponsored by B.I.G. Charity Law Group Professional Corporation, a Charity Law Firm exclusively serving charity and not-for-profit clients in Toronto, Ontario and across Canada with registration and governance, and B&H Charity Accounts Group, a bookkeeping firm serving Canadian charities in Ontario with all their financial and tax filing needs. Hat tip to our friends at OrgHub.ca, a new, innovative software platform that provides not-for-profits and charities across Canada with a solid foundation for incorporation and streamlined corporate governance. 

B.I.G. Charity Law Group Professional Corporation
https://www.charitylawgroup.ca/
P: 416-488-5888

B&H Charity Accounts Corporation
https://www.charityaccountingfirm.ca/

Creators and Guests

DJ

Producer

Dov Goldberg, J.D.

Dov Goldberg is a manager partner at B.I.G. Charity Law Group Professional Corporation, a Charity Law Firm Providing Services Exclusively to Charities Across Canada

What is The Canadian Charity Law Podcast ?

Exploring the ins-and-outs of Canadian Charity Law in a way that can be understood by the layperson, including Charity Registration, Not-for-Profit Incorporation, Charity Governance, Charity Fundraising, Tax Receipting, and much more!

David: 00:00

Okay. So picture this. You've got this amazing, really passionate idea for a new charity. Right? Yeah.

David: 00:05

Maybe it's a a local food bank you wanna start or perhaps a program helping out at risk youth in your community.

Sara: 00:13

Yeah. Something you're really putting your heart into.

David: 00:15

Exactly. And you're pouring everything into it. Then your cousin mentions their business lawyer. Super sharp guy apparently.

Sara: 00:21

Right. Handles contracts and corporations all the time. Knows corporate law backwards and forwards.

David: 00:27

And he even offers you a discount to help get your charity officially registered. Sounds great, doesn't it? I mean, what could possibly go wrong?

Sara: 00:35

Well, this is actually where a lot of founders, run into trouble often too late, unfortunately.

David: 00:40

Oh, so?

Sara: 00:41

They find out the hard way that charity law isn't just, you know, corporate law with a doing good sticker slapped on it. Uh-huh. It's really a very specialized field. It's got its own unique rules, very technical requirements, compliance stuff that frankly a general business lawyer probably hasn't seen much, if ever.

David: 00:59

So that lawyer who's brilliant with, say, business mergers?

Sara: 01:02

Might completely drop the ball on a Canada revenue agency, the CRA, charity application. It happens.

David: 01:08

And the consequences here, they're not small, are they? We're talking about serious setbacks.

Sara: 01:13

Oh, absolutely. It's not just a minor delay. If your application gets rejected, you could be looking at starting completely over.

David: 01:19

Oh, wow. Months of work gone.

Sara: 01:21

Months of time, thousands of dollars potentially just gone. And even if you get approved, but maybe the legal structure isn't quite right

David: 01:30

Then you're looking at trouble down the road.

Sara: 01:31

Big trouble. Compliance violations, penalties, maybe even losing your charitable status altogether Oof. Or, and this is a scary one, personal liability for the directors. Plus, a weak structure just creates ongoing operational headaches. It drains resources, distracts you from what you actually set out to do.

David: 01:50

Right. From the actual mission.

Sara: 01:51

Precisely. So that's really what we want to dig into in this deep dive, how working with lawyers who specialize in charity law doesn't just help you, you know, dodge these bullets.

David: 02:02

It actually helps you succeed.

Sara: 02:03

Yes. It actively enables success. We want to unpack how that specific legal expertise is really An investment in your future, helping you structure things effectively, navigate the red tape efficiently, and build systems that last for sustainability and hopefully growth.

David: 02:21

Okay. Let's get into that because when you say Canadian charity law, it's not just one rule book, is it? It's more like a web.

Sara: 02:27

That's a great way to put it. It really operates at the intersection of several often complex legal areas. You've got federal charity law which the CRA handles. Then there's corporate law, federal, could be provincial depending on how you set up.

David: 02:41

Okay.

Sara: 02:42

Plus employment law, privacy law, tax law, even provincial rules about fundraising in some places.

David: 02:47

Wow. Okay. So a general lawyer might know one piece really well.

Sara: 02:51

Exactly. But they often lack that deep understanding of how all these pieces fit together specifically for a charity. That context is crucial.

David: 03:00

And I gather there are some concepts in charity law that are, well, pretty unique.

Sara: 03:04

Oh, definitely. Things that just don't really exist elsewhere in Canadian law. Take the charitable purposes doctrine.

David: 03:10

Okay, what's that?

Sara: 03:10

It defines the specific categories of charity like relieving poverty, advancing education and so on. But these aren't just general ideas, they have very precise legal meanings built up over centuries of court cases.

David: 03:24

Centuries?

Sara: 03:25

Yeah. And then there's the public benefit requirement. Charities absolutely have to show their work genuinely benefits the public, not just a small private group.

David: 03:35

Makes sense. You also mentioned something called the See Pride Doctrine. Sounds a bit archaic.

Sara: 03:40

It does sound a bit old fashioned, but it's a really important legal principle. It deals with what happens if a charity's original purpose becomes, say, impossible or just totally impractical to carry out anymore.

David: 03:51

Okay. Like, if the problem they set out to solve gets solved.

Sara: 03:54

Or circumstances just change dramatically, the courts can then step in and decide how to redirect the charity's funds to a purpose that's as close as possible. SiPre means so near to the original one.

David: 04:08

Fascinating. And there are others too.

Sara: 04:10

Oh, yeah. Specific rules about direction and control for how Canadian charities work with other groups, especially overseas, and the rules around political They're quite complex and can be a real minefield if you don't know them well.

David: 04:23

It really sounds like a specialized area.

Sara: 04:25

It absolutely is. And on top of these unique concepts, the whole regulatory environment is just constantly changing.

David: 04:32

Always something new.

Sara: 04:33

Seems like it. CRA policies get updated, new court decisions come down that shift how we understand things, legislatures tweak the laws, specialized charity lawyers, I mean, this is what they do. They spend their time tracking this stuff, figuring out what it means for their clients. A general lawyer juggling multiple practice areas just can't keep up in the same way.

David: 04:52

That brings us to the the really practical side, the technical compliance stuff, the things it's easy to mess up.

Sara: 04:58

Exactly. Like the t thirty ten annual return form charities file with the CRA. It looks straightforward, but the information required, the categories, the deadlines, they're specific and not always intuitive.

David: 05:11

Right. Or I imagine things like donation receipts.

Sara: 05:14

Oh, the receding rules are incredibly detailed. Different rules for different kinds of gifts. Or for foundations, calculating the disbursement quota, how much they have to spend each year on charitable activities.

David: 05:27

That sounds complicated.

Sara: 05:28

It can be. And these roles often go way beyond what you'd see in standard business accounting or basic corporate governance.

David: 05:35

And linking this back, I guess charity operations themselves touch on lots of legal areas too.

Sara: 05:41

For sure. Think about it. Employment law for staff contract law for agreements, real estate if you own property, intellectual property for your program material, and definitely privacy law, especially with donor data.

David: 05:55

So the specialist sees how all that interacts with the charity rules?

Sara: 05:59

Precisely. They see the whole picture, not just isolated pieces of the puzzle. They understand how, say, an employment issue might have specific charity law implications.

David: 06:08

Okay, so let's talk about the CRA itself, the Canada Revenue Agency. Understanding them seems pretty key.

Sara: 06:14

It's crucial. A specialized charity lawyer gets the CRA's culture, their expectations, things like how they tend to approach compliance, often focusing on risk, trying to provide guidance before bringing down the hammer.

David: 06:28

So they know how to talk to them basically?

Sara: 06:30

They know what the CRA looks for, they have institutional knowledge which helps them give much better advice and represent you more effectively if issues come up.

David: 06:37

Right. And the application itself, Form T2050, you mentioned that requires expertise.

Sara: 06:43

Definitely. Knowing exactly what information the CRA needs, how to phrase your charitable purposes clearly, how to describe your activities so they obviously show public benefit. These things are critical.

David: 06:54

It's not just filling in blanks.

Sara: 06:56

Not at all. A specialist knows what supporting documents will actually strengthen the application, maybe head off questions the CRA might have before they even ask them, it saves so much back and forth.

David: 07:07

And it's not just about getting approved, is it? The relationship continues.

Sara: 07:11

Absolutely. Specialists help with ongoing CRA compliance too, making sure that annual T thirty ten is done meticulously, developing internal policies that meet the rules, monitoring activities to ensure you stay compliant.

David: 07:24

Like preventative medicine for the charity.

Sara: 07:26

That's a good analogy. They help spot and fix potential issues before they blow up into major problems. A preemptive strike against future headaches, like you said.

David: 07:35

And if the CRA does come knocking for an audit or review.

Sara: 07:38

That's when specialized lawyers are invaluable. They understand the audit process inside out, know what to expect, how to communicate effectively with the auditors, and how to negotiate resolutions if necessary.

David: 07:50

They also help you adapt when the rules change.

Sara: 07:52

Yes, they'll assess how new regulations impact your specific operations and help you plan to implement those changes smooth. Smoothly.

David: 07:58

Okay, let's tackle the big cost. Specialized help sounds, well, expensive upfront.

Sara: 08:06

It might seem that way, but here's the thing, it often provides much better value overall and can actually lead to lower total costs in the long run compared using a general lawyer.

David: 08:15

How does that work? Efficiency.

Sara: 08:17

Efficiency and speed are big parts of it, yes. Specialists can spot issues instantly that might take a generalist hours of research. Their experience means applications are usually faster, more complete, need fewer revisions.

David: 08:29

So you're not paying them to learn the basics on your time.

Sara: 08:32

Exactly. You're paying for expertise they already have. And think about the success rate.

David: 08:37

Ah, right. What are the numbers there?

Sara: 08:39

Specialized charity lawyers typically see approval rates for new registrations well above 90%.

David: 08:45

90%. Okay.

Sara: 08:46

Compare that to much lower rates for general practitioners or people trying to do it themselves, often hovering around 60% based on CRA stats.

David: 08:55

60%. That's a big difference.

Sara: 08:57

It's huge. And a failed application isn't just a no. It means maybe six months, maybe a year or more wasted. Plus the extra legal fees to fix the problems and reapply.

David: 09:09

So that initial savings suddenly doesn't look so good?

Sara: 09:11

Not really. I've seen cases where a generalist eventually got an application approved, but the structure was flawed from the start. The charity then spent years dealing with operational issues, sometimes even unexpected tax bills.

David: 09:22

Like building a house on sand you mentioned earlier.

Sara: 09:25

Exactly. It might stand for a while, but it's fundamentally unstable.

David: 09:29

So let's say it costs, I don't know, 6,000 for proper specialized health that gets you approved smoothly versus maybe $3,000 for a general lawyer where you risk rejection and then you might have to pay another $8,000 or more to fix it.

Sara: 09:44

The math becomes pretty clear, doesn't it? The return on that initial investment is significant. Plus specialists often offer fixed fees for things like incorporation and registration so you know the cost up front.

David: 09:55

And avoiding those big mistakes, later penalties, loss of status that saves money too.

Sara: 10:00

Hugely. It's like having that experienced co like you said. They know where the dangers are. Nobody wants their mission sunk by a legal iceberg they didn't see coming.

David: 10:09

No. Definitely not when you're trying to do good work.

Sara: 10:11

And the data backs this up. Specialists usually get applications approved in maybe six to eight months because they're complete and well prepared from the start. Less experienced lawyers, you might be looking at twelve, even eighteen months.

David: 10:23

Wow. That's a long time to wait.

Sara: 10:24

It is. And in compliance reviews or audits, charities represented by specialists generally fare better, resolving issues often without formal sanctions. This all feeds into better long term health for the organization, sustainability, growth, preventing crises.

David: 10:41

So the value really goes beyond just that initial setup. It's about ongoing support too.

Sara: 10:46

Absolutely. That's a huge part of it. They provide continuous guidance. You can call them with quick questions. They're available.

David: 10:53

And they're proactive.

Sara: 10:53

Yes. Anticipating legal issues before they arise based on your plans, that's invaluable.

David: 10:58

And keeping track of all those rule changes we talked about.

Sara: 11:01

That's another key service. They monitor developments, CRA policies, court cases, legislation, and they don't just tell you, hey, this change, they explain what it means for you and help you adapt.

David: 11:12

You also benefit from their work with other charities.

Sara: 11:15

Right. They see trends. They see best practices. They learn from situations across their client base. You benefit from that collective experience.

David: 11:23

And once you have that relationship, it gets more efficient over time.

Sara: 11:26

Definitely. You don't have to re explain your history or your context every time a new issue pops up. They become a real strategic partner, not just a problem solver you call in emergencies.

David: 11:36

And they often have networks, other useful contacts.

Sara: 11:39

Exactly. Good charity lawyers usually know accountants, consultants, fundraisers, others who also specialize in the nonprofit sector. It gives you access to a whole ecosystem of support.

David: 11:51

Which ties into this idea of industry knowledge, I suppose. They know the sector, not just the law books.

Sara: 11:57

Precisely. They understand the common challenges charities face, how CRA policies are actually applied in practice to different kinds of activities.

David: 12:05

Their relationships with CRA officers probably help too.

Sara: 12:08

They can, yes. And their networks with other professionals, even connections to similar charities, can provide value way beyond just the legal advice. Maybe it helps improve a grant application, for instance.

David: 12:19

So they're advising not just on, is this legal? But also is this effective or is this standard practice?

Sara: 12:26

That's a big part of it. They're aware of innovative ways to structure things, new approaches charities are taking, they're often involved in policy discussions, teaching other professionals. It shows a deeper commitment.

David: 12:37

Okay, this all clearly links to risk management. How do they help specifically with managing risks?

Sara: 12:45

Well first, they help you identify the risks unique to charities. Compliance risks, obviously, Potential legal liabilities for the organization and its directors personally. The risk that comes from regulatory changes.

David: 12:58

And then they help you deal with those risks.

Sara: 12:59

Exactly. They help build concrete strategies to mitigate them. Developing clear policies, recommending improvements to how the Board governs, setting up systems to ensure you stay compliant.

David: 13:10

Things like training for the Board and staff.

Sara: 13:12

That's often part of it, yeah. Making sure everyone understands the risks and how to avoid common pit building that risk awareness culture.

David: 13:20

And if something does go wrong, a crisis hits.

Sara: 13:23

They help with response planning and managing the situation to minimize the damage. And importantly, they advise on insurance, making sure you have the right coverage like directors and officers liability insurance to protect the organization and the individuals involved.

David: 13:38

So when is the crucial time to actually bring in one of these specialists?

Sara: 13:42

Well, definitely before you even incorporate during that initial planning stage. And obviously for the charity registration process itself. Okay. Anytime you're thinking about major changes like shifting your program significantly, expanding nationally or internationally, and honestly, any formal letter from the CRA that isn't just a standard acknowledgement, that's usually a sign to get specialist help immediately.

David: 14:03

Like a red flag?

Sara: 14:04

A big one. Also, key strategic decisions. Choosing between being a charitable organization versus a foundation, or planning complex international activities.

David: 14:15

Basically any time the legal side could really impact your effectiveness or survival.

Sara: 14:19

Or when mistakes could lead to serious costs or personal liability that's when you need the specialist.

David: 14:25

Okay. Pulling this all together, what's the main takeaway for you, our listener?

Sara: 14:31

I think it's pretty clear that investing in specialized legal support really frees up organizations to focus on why they exist in the first place, their charitable mission.

David: 14:41

Right. Instead of getting tangled up in legal knots and compliance worries, it enables the good work rather than holding it back.

Sara: 14:47

Exactly. It's about enabling impact.

David: 14:50

So thinking about this, it makes you wonder, doesn't it? Considering how much difference specialized knowledge makes here in charity law, what areas in your own work or even your personal life might benefit from that kind of deeper, more specialized understanding?

Sara: 15:06

That's a great question. And how might changing your view, seeing specialized support, not just as a cost, but truly as an investment, how might that change the way you approach challenges or even seize opportunities in the future?

David: 15:18

Definitely something to think about.