Are you wondering how to set up a foundation, not-for-profit, or charitable organization in Canada? Well, you have landed at the right place!
In this article, we will take a look at what it takes to register a private foundation in Canada, how they differ from charitable organizations, and why they are beneficial for the overall economy.
What Is A Private Foundation In Canada?
Private foundations in Canada are established as trusts or corporations for the sole purpose of donating funds to chosen CRA-qualified organizations and/or conducting charitable activities of their own.
A private foundation is not to be confused with a public charity. While charitable organizations do actual charitable work, private and public foundations are generally non-operational.
Private and public foundations offer grants, gifts, and donations to charitable organizations of their choosing that are in line with the foundation's philanthropic goals.
Private foundations are also tax-exempt.
Setting up a private foundation is highly recommended for individuals of high net worth that are seeking ways to further their philanthropic interests and tax planning goals.
How To Set Up A Foundation In Canada?
The first step is to speak to a financial or legal advisor that specializes in the legality, taxation, and regulatory implications of setting up a foundation in Canada.
However, before you do that, here are some things that you need to be aware of. Firstly, all foundations in Canada have to be registered as charities, and that comes with its own set of advantages and obligations
If you decide against registering as a charity, keep in mind that your foundation will have to pay income tax, and you won’t be able to issue tax receipts to donors. This is why almost all private and public foundations in Canada are registered charities.
To set up a private foundation one must follow these two steps.
- Set up the foundation and establish it as a legal entity either in the form of a trust or a corporation. A trust can be established by way of a trust deed, whereas a corporation has to be incorporated under the relevant provincial, territorial, or federal legislation.
- Once an entity is established, the next step is to apply for charitable registration through the Canada Revenue Agency (CRA) .
Applying isn’t a straightforward process. The application requires substantial documentation, a description of your intended activities, and a review process that ultimately decides whether you get approved or not.
It is also the CRA that will decide the designation of the charity; whether it is to be a charitable organization, public foundation, or private foundation.
The decision is based on various factors, such as the source of funding, the relationship between trustees and directors, and the intended goals of the foundation.
What Is The Difference Between A Foundation & A Charity In Canada?
The biggest difference between a foundation and a charity is the manner in which they are funded or operated. Private foundations are funded by an endowment from a single individual or family, whereas a charity is funded by many individuals, foundations, and organizations.
Private foundations do not solicit donations but charitable organizations do. Charities also do charitable work that foundations often do not partake in. A foundation’s main purpose is to fund the goals of charities that are in line with its philanthropic interests.
How Much Money Do You Need To Start A Foundation In Canada?
To start a foundation in Canada you would likely require the assistance of a financial advisory firm or a law firm. Certain organizations, such as Eastport Financial, specialize in helping Canadians set up private foundations to pursue their philanthropic goals.
If you plan on using a firm to help you with the setup process from start to finish, you can expect the legal cost to amount to somewhere between $5000 - $15,000.
To incorporate and register a Canadian non-profit without charity status would typically cost between $2,000 - $3,000 in legal fees and around $300 in disbursements.
Remember that registering for a private foundation will take less time than applying for a registered charitable organization that conducts charitable activities and solicits donations.
An application for starting a private foundation (without an operational charitable status) can take anywhere from 72 hrs to a week with the help and assistance of professional advisory services.
Do Nonprofits Pay Taxes In Canada?
NPOs and registered charities are not subject to paying income tax in Canada. This is according to Part 1 of the Income Tax Act. Click here to learn more about nonprofit law in Canada.
What Are The Benefits Of Starting A Foundation?
There are plenty of benefits to starting a private foundation in Canada.
The first and perhaps the most obvious benefit is the opportunity to bring positive change through the process of giving. As private foundations are often formed by a family and not an individual this encourages family involvement and helps further the succession of philanthropic values to future generations. Most important of all it helps build a lasting legacy.
There are other benefits of starting a private foundation as well, such as tax benefits that include donation receipts, charitable tax credits, and exemption from paying income tax.
The other benefit of a private foundation is that it allows the owner or family to maintain control of ownership and decision-making. For more on this, it is recommended you consult with a trusted financial advisor.
Financial Advisor Services For Charitable & Philanthropic Organizations
If you are seeking financial advisory services for the incorporation, organization, and registration of a private foundation in Canada look no further than Eastport Financial Group. Our team of expert advisors specializes in the setting up of charitable and philanthropic organizations and does so in record time.
Most applications are compiled and submitted within 72 hours of you committing to the process. If you believe a private foundation could be the best course of action for your tax planning and philanthropic interests, pick up the phone and give us a call today!
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