In Canada, private philanthropy is considered as a fundamental component of the country’s legacy to the charitable sector. Canadian citizens have multiple options for organizing their charitable giving in a strategic manner, one of which is building a private foundation. Part of how to start a foundation in Canada involves learning the laws governing the operations of a private foundation.
The Council on Foundations indicates that private foundations are classified under “registered charities” and thus, should abide by the laws applicable to this classification. Fourteen different jurisdictions may apply to a private foundation – corresponding to the federal level, ten provinces, and three territories. The federal is the most important one for foundations to comply with. Registered charities have tax exemptions and distinct tax treatments to support their charitable giving and they can enjoy these as long as they are in compliance with the laws.
Many non-compliance issues can compromise a private foundation’s capability to operate and, as a result, prevent it from effectively providing help. Through the established laws, the Canada Revenue Agency (CRA) takes care of ensuring the charitable community is effective and no one is using charities as a tax evasion scheme via carefully enforcing compliance.
With their audits, they have found some common non-compliance issues: lending of registration numbers, inflated receipt amounts, inadequacy in records, inaccurate or incomplete information in receipts, and abusive gifting arrangements for tax sheltering. Spotting these problems is a good move to prevent the use of charities to escape tax responsibilities, but some of these may happen unintentionally within foundations that are sincere with their endeavors.
Private foundations must be aware of laws and put efforts toward compliance so they can continue with their charitable work without trouble. With many applicable laws and difference in jurisdictions, such is no simple task, but it shouldn’t discourage people who have a desire for philanthropy. Finding a way to make things simpler is totally achievable, after all.
Many donors are becoming aware of organizations such as Canada Gives, who make the process of starting and operating a foundation simpler through the use of donor advised funds. By opting for a donor advised fund structure, donors by-pass the governance, administration and reporting obligations while maintaining their opportunity to select charities to receive funding from their foundation. Canada Gives, as the underlying registered charity offering donor advised funds, is responsible to CRA to meet all of the compliance and audit requirements; there is no risk to the donor or their family with the regulators.
(Canada, Council on Foundations)
(Non-Compliance Issues, CRA)