Canada’s charitable sector plays a vital role in supporting communities and addressing social needs across the country. Foundations form a crucial component of this ecosystem, enabling the flow of private wealth toward public causes.
If you are looking to invest as an expat or high-net-worth individual, which is what I specialize in, you can email me (hello@adamfayed.com) or WhatsApp (+44-7393-450-837).
This includes if you are looking for a second opinion or alternative investments.
Some facts might change from the time of writing. Nothing written here is financial, legal, tax, or any kind of individual advice or a solicitation to invest.
This guide explores the fundamentals of Canadian foundations, how they operate, their prevalence across the country, associated costs, and their tax implications.
What are foundations in Canada?
Foundations in Canada are specialized organizations that exist within the broader charitable sector. They serve as financial engines that support charitable activities across the country.
The Canada Revenue Agency (CRA) classifies registered charities into three categories:
- charitable organizations,
- public foundations, and
- private foundations
Among these, the Canadian foundations fall into two main categories: public and private. This classification depends on their funding sources and governance structures. According to the CRA, both public and private foundations are structured as either a corporation or a trust and operate exclusively for charitable purposes.
These institutions play a fundamental role in Canada’s social infrastructure.
According to recent polling, 81 percent of Canadians believe that services delivered by charities and nonprofits are essential to the country’s well-being.
Foundations help make this work possible by providing crucial funding support.
Public Foundations
- Distributes more than 50% of its annual income to other qualified recipients (typically registered charities), while potentially conducting some direct charitable activities
- Majority of its leadership (directors, trustees, or officials) operate independently from one another
- Funding typically comes from diverse, independent donors
Private Foundations
- May either conduct its own charitable initiatives directly and/or provide funding to other qualified recipients
- Either 50% or more of its leadership have connected relationships (not at arm’s length), or
- Receives more than 50% of its funding from a person/group who either controls the charity or constitutes more than half of the foundation’s leadership
Both types of foundations are transparently regulated by the Canada Revenue Agency (CRA), ensuring they maintain accountability while supporting important public causes.
How does a foundation work in Canada?
Canadian foundations operate straightforwardly like other charities but with some distinct features. Key aspects include:
Legal structure:
A foundation must first be incorporated under provincial or federal law, usually as a not-for-profit corporation or established as a charitable trust.
Incorporation gives the foundation its legal identity and governing documents, e.g., articles and bylaws.
Charitable registration:
After incorporation, the organization applies to the CRA for registration as a charity.
Once registered, it receives a charitable registration number and can issue official donation receipts.
The CRA reviews the founding documents and plans to ensure the mission is exclusively charitable.
Funding and activities:
Private foundations are typically funded by one donor or family, while public foundations raise money from multiple donors, including the public or governments.
Foundations usually invest their funds, often as an endowment, and use the income to support charitable programs or to make grants to other qualified charities.
For example, a family foundation might provide grants to education or health charities, or a community foundation might run its own community programs.
Governance:
Foundations must follow CRA governance rules. This generally means having a board of directors or trustees (often a minimum of three) who oversee activities.
Public foundations in particular must have a majority of independent directors and receive funding from diverse sources.
Foundations must keep detailed financial records and ensure none of their resources fund private interests.
Ongoing compliance:
Each year, foundations file a T3010 Registered Charity Information Return with the CRA.
They must meet the disbursement quota, a minimum spending requirement. This quota for private and public foundations is 3.5% of their average asset value (up to $1 million) and 5% of the excess.
This rule ensures that foundations spend a set portion of their assets on charitable activities or gifts annually.
They must also adhere to other charity regulations, e.g., restrictions on political activities, no personal gain, etc.
How many foundations are there in Canada?
The foundation landscape in Canada has evolved significantly over the past decade, with interesting trends emerging in the balance between public and private foundations.
As of 2023, Canada has over 6,700 private foundations registered as charities, representing substantial growth from 2021 (less than 6,200).
Conversely, public foundations have declined in number, falling to 4,777 in 2023 from 4,961 in 2021.
This shift indicates a growing preference for private foundation structures over public ones.
Historical data provides additional context for understanding the foundation sector.
According to the Canada Revenue Agency’s Charities Directorate from December 2010, Canada had 5,050 public foundations and 4,937 private foundations at that time. The financial footprint of these organizations was substantial, when public foundations held $16.8 billion in assets, while private foundations controlled $19.4 billion.
The geographic distribution of foundations across Canada shows significant concentration. The majority at 61% are located in central Canada, while Western Canada hosts 33%, and Eastern Canada accounts for just 6%.
Recent registration patterns suggest continuing changes in the sector.
In 2023, only 38 new public foundations were registered, which was the lowest number in 17 years.
Most public foundations are registered under the Community Benefit heading, demonstrating their focus on broader societal improvement rather than specific sectors like education or religion.
Setting Up a Foundation in Canada
Establishing a foundation in Canada involves a series of clearly defined steps.
Below is an overview of the key phases and actions required to launch a public or private foundation.
1. Define Charitable Purpose and Structure
Before any filings, you must identify and document the foundation’s charitable objects and activities.
The CRA requires that each object be recognized as “charitable at law” and that planned activities directly further those objects.
At this stage, you should also decide whether to operate as a public foundation or a private foundation.
2. Incorporate a Not-for-Profit Entity
Most foundations are organized as federal or provincial not-for-profit corporations.
Federal online incorporation through Corporations Canada typically takes 1–3 days and costs around $200, while provincial fees vary.
Key steps include:
- Name reservation: Obtain a NUANS name search report to ensure your name’s uniqueness.
- Articles of Incorporation: Draft articles setting out the foundation’s name, objects, and structure.
- Bylaws: Prepare bylaws governing internal processes.
3. Convene Initial Meetings and Obtain Business Number
After incorporation, hold the first directors’ meeting to:
- Appoint officers and directors.
- Adopt bylaws.
- Approve banking resolutions.
Then, if applicable, host the first members’ meeting to approve minutes and confirm governance arrangements.
You must also register for a CRA Business Number (BN) to manage payroll, GST/HST, and charity filings within My Business Account.
4. Apply for Charitable Registration with CRA
Applying to become a registered charity is a 4-step process:
- Determine eligibility: Use CRA’s interactive Charity Registration questionnaire.
- Prepare application: Complete Form T2050, including governing documents, detailed activity descriptions, and financial projections.
- Submit application: Send your package to the Charities Directorate.
- Review and notification: CRA may request clarifications; after approval, you receive a charitable registration number and can issue tax receipts.
5. Establish Financial and Operational Systems
Once registered, foundations must set up:
- Dedicated bank accounts for all charitable funds and transactions.
- Accounting and internal controls to ensure compliance with the disbursement quota and other CRA requirements.
- Annual reporting processes to file the T3010 Registered Charity Information Return and maintain good standing.
Following these steps carefully ensures your foundation is legally sound, compliant, and positioned to deliver on its charitable mission in Canada.
How much does it cost to start a foundation in Canada?
Starting a foundation involves modest government fees plus professional costs:
- Incorporation and filings:
The government fees to incorporate a nonprofit are relatively low.
For example, federal nonprofit incorporation is around $200; provincial fees vary (Ontario around $300, B.C. ~ $50, etc.).
Naming and other basic filings add only minor fees – tens of dollars. Importantly, there is no fee to apply to the CRA for charitable status, i.e., registration is free.
- Professional services:
Legal, accounting, and consulting fees typically form the bulk of startup costs.
Charity law experts note that full-service setup, like drafting documents, filing with CRA, etc., often costs on the order of $5,000–$15,000.
This range varies with complexity and professional rates. Some smaller organizations handle registration themselves to save costs, while others pay for expert guidance.
- Other costs:
Additional expenses may include annual report preparation, initial grant funds or program budgets, and operational costs.
Once the foundation is up and running, it may need ongoing audits or professional accountants, but the initial startup expenses are generally limited to incorporation and advice.
In short, establishing a legal entity and obtaining charity status costs a few hundred dollars in government fees.
However, most founders spend several thousand dollars on professional help. These investments ensure the foundation is correctly structured and compliant from the start.
Do foundations pay taxes in Canada?
Foundations in Canada enjoy significant tax advantages as part of the country’s approach to encouraging charitable giving and activities.
As registered charities, foundations have tax-exempt status, meaning they do not pay income tax on their earnings. This exemption allows more resources to flow directly to charitable causes rather than to government coffers.
This tax-exempt status forms part of Canada’s progressive system of charity tax incentives and policy designed to channel private wealth toward public causes.
The system creates benefits for multiple stakeholders:
- Foundations don’t pay income tax on their investment earnings
- Donors receive tax benefits that reduce their tax obligations
- Charitable organizations receive crucial funding support
Some observers have questioned whether this system deprives the government of resources needed to meet public needs.
However, proponents argue that foundations actually amplify public benefit by enabling charitable giving and creating sustainable funding mechanisms for important social causes.
To maintain their tax-exempt status, foundations must meet strict regulatory requirements overseen by the Canada Revenue Agency.
Conclusion
Canadian foundations represent a vital bridge between private wealth and public benefit, enabling sustainable support for charitable activities across the country.
While the landscape shows a shift toward private foundations and away from public ones, the overall sector continues to play a crucial role in Canada’s social fabric.
Starting a foundation involves costs and commitments.
For those considering establishing a foundation, understanding the regulatory requirements, operational models, and tax implications is essential.
Pained by financial indecision?
Adam is an internationally recognised author on financial matters with over 830million answer views on Quora, a widely sold book on Amazon, and a contributor on Forbes.
