Strengthening Not-for-Profit Child Care: Why Ontario Needs Better Safeguards
As Ontario continues to expand its $10-a-day child care system, ensuring that public funding supports high-quality, affordable child care is more important than ever. Research has consistently shown that not-for-profit and publicly operated child care centres tend to provide higher-quality care than for-profit centres. However, simply being incorporated as a not-for-profit does not necessarily mean that an organization operates without opportunities for private financial gain.
Why Not-for-Profit Child Care Matters
The distinction between for-profit and not-for-profit child care is about more than an organization’s legal structure. A 2024 Statistics Canada study, Structural Characteristics of Quality Child Care Services, found that not-for-profit child care centres were more likely than for-profit centres to:
- Pay higher wages to directors, early childhood educators and other staff.
- Employ more staff and serve more children.
- Charge lower daily parent fees.
- Enrol children with special needs.
- Operate in schools and receive operating grants.
These differences matter because staff qualifications, compensation and working conditions are important structural characteristics associated with high-quality child care. When an organization’s resources are directed toward improving programs, supporting educators and meeting children’s needs, rather than generating returns for private owners, children and families are more likely to benefit.
The Growing Concern About “Fake Not-for-Profits”
A growing concern in Canada’s child care sector is the use of “fake not-for-profits”: organizations that are legally incorporated as not-for-profit but are structured in ways that allow private individuals or businesses to financially benefit from their operations.
For example, a for-profit child care operator may establish a separate not-for-profit organization while continuing to own the building where the child care centre operates. The not-for-profit then pays rent to the operator’s private company. Similar arrangements can involve purchasing equipment, food, staffing or administrative services from businesses connected to the organization’s directors or operators. In this way, money can flow from a not-for-profit organization to private businesses without being distributed directly as profits.
These arrangements are not new. Martha Friendly in her May 2025 report, Deconstructing “Fake Non-Profit” Child Care in Canada, documents concerns about such practices dating back several decades. However, they have become particularly relevant under the Canada-wide Early Learning and Child Care (CWELCC) system, which prioritizes public and not-for-profit child care expansion. This creates an incentive for some private operators to establish not-for-profit organizations to access funding intended for that expansion.
Although transactions with related businesses are not necessarily illegal, they raise concerns about whether public funding is being used primarily to support child care or to generate private financial benefits. Simply being incorporated as a not-for-profit does not guarantee that an organization operates in the public interest.
How Toronto’s Rules Better Protect Not-for-Profit Child Care
Ontario’s Not-for-Profit Corporations Act (ONCA) prohibits not-for-profit organizations from distributing profits or property to members, directors or officers for personal gain, except where the Act permits it. However, certain provisions of ONCA can allow directors and officers to financially benefit from business transactions involving the organization.
Under section 41 of ONCA, a director or officer who has a financial interest in a significant contract or transaction with the not-for-profit must disclose that interest. The transaction may still proceed if it is fair and reasonable to the organization and receives the required approval. The board of directors can approve it after the financial interest is disclosed, or the organization’s members can approve it through a special resolution after being informed of the interest, provided the director or officer acts honestly and in good faith. If the applicable requirements are met, the director or officer may keep the financial benefit received from the transaction.
Toronto’s Declaration of Not-for-Profit Compliance takes a different approach. Rather than relying solely on disclosure and approval, it prohibits many of the financial arrangements that could allow directors, officers or people connected to them to benefit from a not-for-profit organization.
Comparing Ontario’s Legislation and Toronto’s Requirements
Requirement | Ontario’s ONCA | Toronto’s Additional Requirements |
Financial benefits from transactions | Under section 41, directors or officers may retain financial benefits from certain transactions if the conflict of interest is disclosed, the transaction is fair and reasonable, and the applicable approval requirements are met. | Prohibits transactions that directly or indirectly confer financial benefits on directors or officers. |
Renting property | Does not automatically prohibit renting property to or from a director, officer or their business. Such arrangements may proceed if ONCA’s conflict-of-interest requirements are satisfied. | Prohibits renting property to or from directors, officers or connected persons. |
Purchasing and selling goods or services | Does not automatically prohibit transactions involving directors, officers or their businesses. Material transactions involving conflicts of interest are subject to section 41. | Prohibits purchasing goods or services from directors, officers or connected persons unless there is only one available source within a reasonable distance. Prohibits selling goods or services to them, except child care services. |
Lending and borrowing money | Does not automatically prohibit lending money to or borrowing money from directors, officers or their businesses. Material transactions involving conflicts of interest are subject to section 41. | Prohibits lending money to or borrowing money from directors, officers or connected persons. |
Connected persons and businesses | Section 41 requires directors and officers to disclose certain financial interests they have in contracts or transactions involving other individuals or businesses. | Extends restrictions to specified family members and connected businesses, including certain corporations in which directors, officers or connected persons hold more than 10% of voting rights. |
Board composition | Requires at least three directors (s. 22). Employees may serve as directors, although employees of a public benefit corporation or its affiliates cannot make up more than one-third of its board (s. 23(3)). | Requires at least five directors and prohibits employees from serving as directors. |
Director remuneration | Directors may receive remuneration for serving as directors, subject to the corporation’s articles and by-laws. Directors, officers and members may also receive reasonable remuneration for services performed in another capacity (s. 47). | Directors must serve without remuneration but may be reimbursed for reasonable expenses incurred in performing their duties. |
Distribution of assets upon dissolution | Public benefit corporations must distribute remaining assets to eligible recipients. Corporations that are not public benefit corporations may distribute remaining assets to members, depending on their articles (s. 150). | After payment of debts and liabilities, remaining assets must be transferred to an eligible registered charity or public benefit corporation with similar purposes operating solely in Ontario. |
Why These Differences Matter
The most important difference is how the two frameworks address financial relationships between a not-for-profit and the people involved in its operation.
Under ONCA, a transaction involving a director’s private business is not necessarily prohibited. If the applicable conflict-of-interest requirements are met, a not-for-profit child care centre could pay rent, purchase supplies or enter into other business arrangements with a company connected to one of its directors or officers.
Toronto’s requirements are designed to prevent these arrangements. By prohibiting rental agreements, loans and many purchases involving directors, officers and connected persons, the City restricts opportunities for money to flow from a not-for-profit to private businesses connected to those responsible for operating or overseeing it.
These restrictions also address indirect financial benefits. For example, a director could have a family member establish a company that supplies food or equipment to the child care centre. Toronto’s rules extend to specified family members and connected businesses, making it more difficult to use these relationships to direct the organization’s resources toward private financial interests.
Toronto’s governance requirements provide further safeguards. Requiring at least five directors, prohibiting employees from serving on the board and requiring directors to serve without remuneration help maintain greater independence between the corporation’s management and those responsible for overseeing its decisions. Its requirements for distributing assets upon dissolution also help ensure that remaining resources continue to support a public purpose.
Together, these protections address several ways in which a child care organization could be legally incorporated as a not-for-profit while still providing financial benefits to private individuals or businesses.
As Ontario continues to expand its publicly funded child care system, incorporation as a not-for-profit should not be the only safeguard against private financial gain. Ontario should adopt requirements similar to Toronto’s additional not-for-profit requirements to help prevent the misuse of not-for-profit status and ensure that public funding supports children, families and educators.
Sources
Friendly, Martha (2025). Deconstructing “Fake Non-Profit” Child Care in Canada: What Is It and What Isn’t It? What Should the Response Be Under the $10-a-Day Plan? Childcare Resource and Research Unit.
Bryan, Valerie, Thomas Charters and Leanne Findlay (2024). Structural Characteristics of Quality Child Care Services. Statistics Canada / Employment and Social Development Canada.
Childcare Resource and Research Unit (2011). What Research Says About Quality in For-Profit, Non-Profit and Public Child Care.
Not-for-Profit Corporations Act, 2010, S.O. 2010, c. 15, particularly sections 23, 41, 47, 89 and 150.
City of Toronto, Declaration of Not-for-Profit Compliance.