What To Consider Before Starting A Private Foundation In Canada
Getting started with long-term giving in Canada
Planning for long-term giving can be a rewarding process for a donor. A good first step is to consult trusted financial and legal advisors who can help navigate the tax, legal, and regulatory implications of the giving option chosen.
In Canada, registered charities fall into three basic types: a charitable organization, a private foundation, and a public foundation. While charitable organizations do charitable work, private and public foundations tend to be the funders who make grants to CRA qualified organizations.
Understanding these three designations
A private foundation is commonly a personal or family choice and are often recommend to high net worth individuals as a practical means of marrying tax planning with philanthropic interests. They are often administered by professional advisors but the fiduciary and public responsibility for everything done in the foundation’s name is the responsibility of the donor.
Public foundations and charitable organizations are more ‘public’ choices such as a concerned citizens’ group might organize. The local community might come together to start a community foundation. Or in another scenario, an individual might start rescuing animals, which then grows into to a larger service involving others eventually prompting the founders to seek registration with the CRA for fundraising and/or tax purposes. The reality is that it can be a burdensome and expensive process to register, when all they want to do is the charitable work of rescuing animals. And, once registered, there are ongoing administrative expenses and responsibilities to keep the organization’s registration. Most of all, the founders need to be really committed to running the business that is their charity.
There are foundations located across the country and, through the generosity of Canadians and businesses, foundations contribute close to 6 billion dollars every year to qualified recipients. Contributing to this positive impact and setting up a lasting philanthropic legacy are among the leading reasons why donors begin looking at starting a private foundation of their own.
What to consider before starting a private foundation in Canada
Once a donor has a good understanding of their personal giving goals, aspirations, and preferences, they may be ready to choose the giving vehicle that best fits their circumstances. Starting a private foundation can be an appealing option but there are a few things a donor may wish to consider first.
- Cost: Starting a private foundation can be costly. A professional advisor can inform a donor of the start-up costs such as administrative overhead and other financial requirements to effectively manage the endowment fund.
- Publicity: Private foundations are required to produce the same public reporting as other registered organizations. This includes financial information, board members, trustees, and grants made. Donors wishing to give anonymously would be better served to give through a Donor Advised Fund where they can make donations with complete anonymity.
- Time investment: What you put in is what you will get out, and this is not just in terms of financial contributions. Time is another big consideration when starting a private foundation. Donors will need to set aside time to assemble a board of directors, articulate how and when funds will be invested and distributed, among other key decisions.
- Risk: Donors seeking greater rewards should expect to take on the possibility of higher risks in their philanthropy. With a private foundation, the donor assumes a greater degree of risk as they are ultimately responsible for the maintenance, growth and distribution of funds.
- Tax and legal regulations: A private foundation may be appealing to donors who wish to support issues or programs outside of their community such as national or international assistance projects. Donors should be mindful of tax laws and other charitable giving regulations in different areas as they may change by region or country.
What to consider with public foundations and charitable organizations
For donors who are interested in long-term philanthropic planning but would rather not divert as much time or money as may be required with a private foundation, they may choose giving to a public foundation or charitable organization.
In this case, giving through a Donor Advised Fund can provide several advantages for the donor. When a donor works with a reputable charitable organization like Gift Funds Canada, they can set up a Donor Advised Fund and donate to any charity in Canada and build a lasting philanthropic legacy. A donor advised fund allows the donor to focus on giving and Gift Funds Canada will handle the administration while providing expertise and assistance.
A charitable gift fund allows donors to create a low cost, flexible instrument for charitable giving as an alternative to direct giving or creating a private foundation. Donors enjoy administrative convenience, cost savings and tax advantages by conducting their grant making through the fund, and advisors benefit from professional support and expertise every step of the way.