Income Tax Act S. 149.1(4) — Revocation of a Private Foundation

The Minister may, in the manner described in section 168, revoke the registration of a private foundation for any reason described in subsection 168(1) or where the foundation

• (a) carries on any business;
• (b) fails to expend in any taxation year amounts at least equal to the foundation's disbursement quota;
• (b.1) makes a disbursement by way of a gift other than in the course of charitable activities or to a qualified donee;
• (c) has a divestment obligation percentage at the end of any taxation year in respect of a class of shares;
• (d) since June 1, 1950, incurred debts other than for current operating expenses, investment transactions, or administering charitable activities.

What This Means for Your Private Foundation

Private foundations in Canada are subject to the most restrictive rules of all charity types. Unlike charitable organizations, a private foundation cannot carry on any business whatsoever — related or unrelated. They are also prohibited from holding more than a prescribed percentage of shares in any corporation (the divestment obligation), and are restricted from taking on debt beyond operating and investment-related expenses.

These strict rules reflect the fact that private foundations are typically controlled by a single family or small group of donors, creating greater potential for self-dealing. B.I.G. Charity Law Group advises private foundations on structuring their activities to remain fully compliant with the Income Tax Act. Contact us for a compliance review.

Frequently Asked Questions

What is the difference between a private foundation and a public foundation?

A private foundation is generally controlled by a single donor, family, or small group, and more than 50% of its directors do not deal at arm's length with each other. A public foundation has a more broadly representative board and is subject to somewhat less restrictive rules.

Can a private foundation make grants to other charities?

Yes. Private foundations primarily operate by making grants to qualified donees (other registered charities) rather than carrying on their own charitable activities directly. This is their primary permitted activity.