Three Types of Charities in Canada

Public Foundations, Private Foundations, and Charitable Organizations

Charitable giving is an integral part of the Canadian financial landscape. For individuals, corporations, and communities looking to make a difference, understanding the structure of charitable organizations is essential. Charities in Canada are generally classified into three types of charitable status: public foundations, private foundations, and charitable organizations. Each operates under unique frameworks, goals, and tax rules, shaping the way donors interact with them and how they contribute to Canadian society.

We’ll explore the distinctions between these three types of charitable organizations and the benefits and considerations for those engaging in planned giving.

Public Foundations: Community Pillars of Giving

Public foundations are often the cornerstone of community-oriented philanthropy. These organizations primarily focus on raising funds and distributing them to other charitable organizations. Public foundations are legally required to have a board that operates at arm’s length, ensuring no single entity or individual controls the organization. This makes them community-driven entities, where the majority of the board members must be independent from one another.

Key Characteristics:

• Fundraising and Grant Distribution: Public foundations do not typically carry out direct charitable activities themselves. Instead, they gather funds through donations and distribute them to other registered charities that carry out charitable work.
• Community and Donor Involvement: Public foundations are a favored choice for those who prefer to pool resources within a community setting. Many of these foundations, such as community foundations, offer donor-advised funds (DAFs). DAFs allow individuals to contribute assets, receive immediate tax benefits, and recommend charities for grants over time. While donors can advise on how the funds are distributed, the public foundation maintains legal control over the assets and their disbursement.
• Tax Benefits: Public foundations provide attractive tax benefits, particularly for donors who contribute securities. Donations of publicly listed securities to public foundations are exempt from capital gains tax .

Public foundations are appealing to those who want to support a variety of causes without directly managing charitable activities. Their ability to maintain transparency, community involvement, and tax advantages makes them an integral part of the Canadian charitable system.

Private Foundations: Personalized Philanthropy with Control

Private foundations offer a more personalized approach to philanthropy. Unlike public foundations, private foundations are typically created and funded by a single individual, family, or corporation. These entities allow donors to retain significant control over the foundation’s investments and grant-making process.

Key Characteristics:

• Donor Control: A key feature of private foundations is the high level of control retained by a person or connected group of people. This includes control over investment strategies and decisions regarding grant distributions. In many cases, private foundations are used by wealthy investors or families wishing to establish a philanthropic legacy .
• Focus on Grant-Making: Similar to public foundations, private foundations generally do not engage in direct charitable activities. Instead, they focus on making grants to other charities. The donor, often along with family members, can select causes that align with their philanthropic vision.
• Tax Advantages and Reporting: Contributions to private foundations still come with tax benefits, such as the ability to donate appreciated securities without triggering capital gains tax. However, private foundations, like public foundations, are subject to regulatory requirements, including minimum disbursement quotas. These quotas require private foundations to disburse a certain percentage of their assets annually .

While private foundations offer greater control, they require careful management and adherence to regulations. For those interested in long-term, hands-on philanthropy, private foundations are an excellent vehicle for directing charitable efforts.

Active Charities: Direct Impact Organizations

Charitable organizations are the most familiar type of charity to the public. These organizations lead direct charitable efforts, delivering services like healthcare, education, and religious or cultural programs. Unlike foundations that primarily provide funding to other entities, charitable organizations take action themselves, driving their missions through hands-on involvement in the communities they serve.

Key Characteristics:

• Direct Charitable Work: charitable organizations operate programs or services that align with their mission. Examples include hospitals, universities, shelters, and international aid organizations.
• Funding and Operations: These organizations typically receive funding from individual donations, government grants, and fundraising campaigns. Charitable organizations must also spend a portion of their revenue on delivering services rather than accumulating or investing it. Although charitable organizations may hold investment portfolios too.
• Regulatory Requirements: charitable organizations are subject to strict oversight by the Canada Revenue Agency (CRA), particularly in terms of how much of their income is allocated towards charitable activities.

For donors who wish to see their contributions directly applied to charitable causes, charitable organizations provide the most transparent and immediate impact. However, these organizations may have fewer investment options and donor-advised funds compared to foundations.

Choosing the Right Vehicle for Your Charitable Giving

When considering charitable giving, it’s essential to align your philanthropic goals with the right type of organization. Whether you’re seeking the direct impact of charitable organizations, the community focus of public foundations, or the personal control of private foundations, each type offers unique benefits.

• Public foundations are ideal for donors who want to contribute to an independent foundation focused on a particular charitable cause.
• Private foundations provide maximum control and are best suited for individuals or families who wish to manage their charitable contributions and legacy directly.
• charitable organizations are suitable for those looking to directly support charitable work and services.

In the end, understanding the distinct characteristics of the three types of charitable organizations: public foundations, private foundations, and charitable organizations can help you make informed decisions about how to structure your charitable giving, ensuring that your contributions make the greatest possible impact.

By choosing the right type of charity, you can ensure that your philanthropic efforts not only align with your values but also benefit from the tax advantages and control that best suit your personal financial situation.