Restricted Funds and Donor Intent

A restricted gift is not an instruction the board may reconsider when priorities change. It is a legal restriction on the money, and it survives the enthusiasm that created it.

Arrange a Call →

RestrictionsCharitable Purpose TrustsUnspent FundsVariation

Grant and donation money given for a stated purpose must be applied to that purpose. In Ontario, charitable property is supervised under the Charities Accounting Act, and changing the application of a restricted fund is not a decision the board can take on its own.

Who does this work. Lexaltico LLP’s government funding and grants service is led by Mitch Parmasar, who is not a lawyer and does not provide legal advice. Where a matter calls for legal advice — a funding agreement, a governance question, a repayment demand — it is handled by a lawyer at Lexaltico LLP. The firm is responsible for all of the work described on this page.

Quick Answer

Can a charity use restricted funds for something else?

Not by deciding to. Money given or granted for a stated purpose is restricted to that purpose, and the restriction is legal rather than an accounting convention. It binds the organisation even when its priorities change, even when the need elsewhere is greater, and even when everyone involved would agree it is sensible. Where a restriction genuinely cannot be met — the programme has ended, the money cannot be spent as specified — there are proper routes to resolving it, and they involve the donor or funder, and in some cases the court or the Office of the Public Guardian and Trustee.

Ontario law · Lexaltico LLP, Toronto · introductory call

Arrange a Call

Speak to a Lawyer About Restricted Funds

Tell us briefly what is going on. A lawyer reviews every enquiry and replies within 2 business days.

A lawyer replies within 2 business days. Urgent? Call +1 416 333 6200, answered 24/7. Submitting this form does not create a solicitor-client relationship.

WHAT A RESTRICTION IS

A Purpose, Not a Preference

When money is given or granted for a stated purpose, the purpose attaches to the money. The organisation holds it for that purpose and may apply it to no other. For a charity the analysis is often that of a charitable purpose trust, which is why the organisation’s own view of what would be sensible is not the operative question.

This surprises boards because the restriction is usually created informally — an appeal for a specific thing, a grant for a named project, a donor’s letter saying what the gift is for. None of that needs to be a formal document to bind the money.

WHERE IT BITES

The Cash-Flow Problem It Creates

An organisation can be technically solvent, holding money in the bank, and unable to pay its rent, because every dollar is restricted to something other than rent. That is not a bookkeeping failure; it is what restriction means.

The temptation at that point is to borrow from a restricted fund and replace it later. That is a breach when it happens, not when it is discovered, and the replacement does not undo it. Where the position is genuinely difficult, the answer is a conversation with the funder about whether the restriction can be varied — which is sometimes possible and is never retrospective.

SEVERAL AT ONCE

You Must Be Able to Say Which Money Went Where

An organisation holding several restricted funds has to be able to demonstrate, for each, that it was applied to its own purpose. A single pooled balance with a spreadsheet of intentions is not that demonstration, and it is the state most small organisations are in.

Fund accounting exists for this and it is worth the effort at the point the second restricted grant arrives, not at the point a funder asks. Reconstructing which dollars paid for what, two years later, across a single bank account, is often simply impossible.

AT THE END

Unspent Money Generally Goes Back

Where a funded project ends with money unspent, the agreement usually says what happens to it, and the answer is normally that it is returned. Quietly retaining a surplus is one of the most common reasons a completed grant turns into a repayment demand years afterwards.

Where the agreement is silent and the money was restricted to a purpose that has been fulfilled, the position is less obvious and worth advice. What is not open is treating the surplus as general funds because nobody asked for it back.

WHEN IT CANNOT BE MET

Variation Is Possible, but Not Internally

Restrictions sometimes become impossible or impracticable: the programme no longer exists, the building was never bought, the specified use has been overtaken. There are established routes to resolving that, and the first is usually the simplest — asking the funder or the donor to agree to a different application, in writing.

Where that is not available, because the donor has died or the funder no longer exists, the matter may require an application to the court, and in Ontario charitable property engages the Charities Accounting Act and the role of the Office of the Public Guardian and Trustee. What is not a route is a board resolution recording that the money is now unrestricted.

DIRECTORS

Who Carries the Consequence

Misapplying restricted funds is a breach by the organisation, and directors have duties in relation to the charitable property the corporation holds. A board that authorises spending a restricted fund on general operations is not making a pragmatic financial decision; it is authorising a breach.

The practical protection is unremarkable: know what is restricted and to what, keep the records that show it, and treat a proposal to use restricted money differently as a question for advice rather than a line in the management accounts.

HOW WE WORK

What Lexaltico Does on a Restricted Funds Question

The common instruction is practical: an organisation holding several grants wants to know what it may actually spend on what, or is looking at a surplus on a finished project and does not know whether it may keep it. Both are answerable from the documents.

Where the question is which programme a fund came from and what the agreement permits, that is handled on the funding side by Mitch Parmasar, who is not a lawyer. Whether a restriction binds, what it permits, and how it might be varied are legal questions and are handled by a lawyer at Lexaltico LLP. Fees are quoted and agreed in writing before work begins.

Common Questions

Frequently Asked Questions

Can a charity use restricted funds for something else?

Not by deciding to. The restriction attaches to the money and binds the organisation even where using it differently would be sensible.

Does a restriction have to be in a formal document?

No. An appeal for a specific purpose, a grant for a named project or a donor’s letter can all create one.

We cannot pay the rent but we hold restricted money. What can we do?

Not borrow from it. The proper step is to ask the funder whether the restriction can be varied, which is sometimes possible and never retrospective. Take advice early rather than after the payment.

What happens to money left over at the end of a project?

Usually it is returned; the agreement will normally say so. Retaining a surplus quietly is a common reason a finished grant becomes a repayment demand later.

Can the board vote to make a fund unrestricted?

No. Where a restriction genuinely cannot be met, the routes are agreement from the funder or donor, or in some cases an application to the court, with the Charities Accounting Act and the Public Guardian and Trustee engaged in Ontario.

How do we track several restricted funds?

Fund accounting, adopted when the second restricted grant arrives rather than when a funder asks. Reconstructing which money paid for what across one pooled account years later is often impossible.

Is misusing restricted funds a personal risk for directors?

The breach is the organisation’s, and directors have duties in relation to the charitable property it holds. A board authorising such spending is authorising a breach, which is why it is a question for advice.

The donor has died and the purpose no longer exists. Now what?

That is the situation the variation routes exist for, and it may require a court application. It is not resolved by treating the fund as general money.

Arrange a Call

Talk to Us About Restricted Funds

Our lawyers offer an introductory call for most matters. Call, email, or book online. Do not sign anything before speaking with us.

Your name

Email address

Phone

Best time to reach you

Briefly, what is happening?

A few questions about your government funding & grants matter optional

None of these are required and your enquiry sends without them. They let the lawyer read your situation before the call rather than during it.

What kind of organisation is it? optional

Where are you with it? optional

Is there an application or response deadline? optionalMost funding programmes close on a fixed date and do not reopen, so tell us any date you have.

Which programme, if you know it? optionalFor example SR&ED, IRAP, CSJ, or an Ontario or municipal grant.

Please do not send confidential documents or details through this form. We will ask for what we need once we have spoken and confirmed we can act for you.

Confidential and no obligation. We reply within 2 business days. You can call +1 416 333 6200 instead if you would rather speak to someone now.

Lexaltico LLP

Downtown Toronto

55 University Ave, Suite 1100
Toronto, ON M5J 2H7

North York

2 Sheppard Ave East, Suite 303, Toronto, ON M2N 5Y7

Phone

+1 416 333 6200

Hours

Monday to Friday: 9:00 AM to 5:00 PM
Evenings & weekends by appointment

Call to Discuss Your Matter →

Related Corporate & Business Law Pages & Guides

Corporate Law Overview Incorporation Lawyer Corporate Governance Employment Agreements for Employers Contact Lexaltico LLP

Arrange a Call

Ready to Talk? Arrange a Call

No obligation. We will tell you honestly whether we can help, and what it would cost, before you commit to anything.

A lawyer replies within 2 business days. Urgent? Call +1 416 333 6200, answered 24/7. Submitting this form does not create a solicitor-client relationship.

Arrange a Call

Call Message