How to Start a Private Foundation in Toronto, Ontario

Foundations, whether private or public, play a significant role in supporting charitable causes across Canada. If you’re considering starting a foundation in Toronto, Ontario, or anywhere else in Canada, understanding the process, responsibilities, and differences between private and public foundations is crucial. This guide will walk you through the key steps and considerations, as well as highlight the benefits of establishing either type of foundation.

What Is a Private and Public Foundation in Canada?

In Canada, both private and public foundations are registered charities that provide financial support to other charitable organizations. The main difference between the two lies in their funding sources and operational models:

• Private Foundation: Typically funded by a single individual, family, or corporation. It is managed by a small group of trustees or directors, often family members, who control the distribution of funds. Private foundations usually do not engage in active fundraising or solicit donations from the public.
• Public Foundation: Funded by a broader group of individuals, corporations, and other foundations. Public foundations actively raise funds and often have a more diverse board of directors. They are more involved in public fundraising campaigns and may support a wider range of charitable initiatives.

Both types of foundations are tax-exempt when registered with the Canada Revenue Agency (CRA) and focus on supporting charitable causes either through grants or by conducting their own charitable activities.

How to Set Up a Public or Private Foundation in Canada?

Setting up a foundation in Canada lets you support causes you care about while getting tax benefits. The setup process is similar for both public and private foundations, but key differences affect your choice. Private foundations use your own money and give you more control. Public foundations collect donations from many sources and follow different rules.

Whether you’re setting up a private or public foundation, the process is similar, though certain elements will vary depending on the foundation type.

Determine the Legal Structure: Trust or Corporation

Foundations in Canada can be established either as a trust or a corporation. If setting up a trust, you will need to create a trust deed. If establishing a corporation, you will need to incorporate the foundation under provincial, territorial, or federal law. In Ontario, you would register your foundation under the Ontario Not-for-Profit Corporations Act (ONCA).

Incorporation and Name Selection

Choosing a unique name is an important step in the process. If the name includes a person’s name, written consent from the individual or family may be required. To ensure that your chosen name is unique, you can request a NUANS (Newly Upgraded Automated Name Search) report, which checks for similar business names across Canada.

Apply for Charitable Status with the CRA

After incorporation, the next step is applying for charitable status with the CRA. This is a crucial step because it allows your foundation to be tax-exempt and issue tax receipts to donors. The application process involves submitting detailed documentation, including a description of the foundation's activities, governance structure, and charitable purposes.

The CRA will determine whether your foundation qualifies as a private foundation, public foundation, or charitable organization based on factors such as funding sources, the relationship between directors or trustees, and the foundation's operational goals. Public foundations must demonstrate a broader funding base and typically have more external directors than private foundations.

Board of Directors for Foundation

Both private and public foundations require a board of directors. In Ontario, at least three directors are required to incorporate a foundation. Each director must provide an original signature on the incorporation documents. Public foundations typically have a larger and more diverse board compared to private foundations, which are often family-run. Federally incorporated Private Foundations can suffice with just one director.

Apply for a Charitable Tax Number

Once your foundation is registered as a charity with the CRA, it can apply for a charitable tax number. This allows the foundation to issue tax receipts to donors, which can be a major incentive for contributions.

How Much Does It Cost to Start a Private or Public Foundation?

Starting a foundation in Canada involves some legal and administrative costs. If you choose to work with a lawyer expert in charity law, expect fees to range from $7,000 to $15,000 for comprehensive assistance throughout the setup process.

• Incorporating a Foundation: Incorporation fees for a non-profit foundation (whether private or public) typically range between $2,000 and $3,000 in legal fees. Additionally, you’ll need to pay government filing fees, which can range between $200-$250, depending on which provincial (or federal) jurisdiction the Foundation is incorporating in. A typical foundation can be incorporated in as little as 1-3 business days.
• Application for Charitable and Foundation Status: Applying for charitable and foundation registration can take 6-8 months, depending on the complexity of the foundation’s operations and the CRA’s review process. However, most Family and Private Foundations who are exclusively donating to other charities are registered within 3-4 months, on average.

What Are the Benefits of Starting a Foundation in Canada?

Both private and public foundations offer several advantages:

1. Tax Benefits: Registered foundations are exempt from paying income tax in Canada. They can also issue tax receipts to donors, which provides significant tax relief through charitable tax credits.
2. Philanthropic Legacy: Foundations, particularly private ones, offer families an opportunity to build a lasting legacy. They allow individuals or families to maintain control over how funds are distributed, ensuring that donations align with their philanthropic vision for generations to come.
3. Control and Flexibility: Private foundations, in particular, offer control over decision-making and grant distribution. Public foundations, while more reliant on external donations, also benefit from having a wider reach and broader community support.
4. Structured Giving: Foundations provide a structured and strategic approach to charitable giving. Whether through grants, scholarships, or direct donations to charities, foundations allow for more organized philanthropic efforts that align with long-term goals.

Is Starting a Private or Public Foundation Right for You?

Setting up a private or public foundation in Toronto can be a rewarding way to support charitable causes and leave a lasting philanthropic legacy. Both private and public foundations offer significant tax benefits, control over charitable giving, and the opportunity to make a lasting impact on communities and causes that matter most to you.

Before starting the process, it’s important to consult with experienced charity and not-for-profit lawyers to ensure that your foundation complies with all regulatory requirements and aligns with your charitable goals. Whether you're setting up a private family foundation or a public foundation that reaches out to the wider community, the steps outlined above can help guide you through the process. Set up a free call with our team at 416-488-5888 or schedule a call here.

Frequently Asked Questions

Get quick answers to common questions about setting up foundations in Canada.

What is the minimum amount to start a private foundation?

There's no legal minimum amount required to start a private foundation in Canada. However, you should have enough funds to cover setup costs (typically $5,000-$15,000) plus ongoing operational expenses. Most experts recommend starting with at least $100,000 to make the foundation financially viable long-term.

How much does it cost to start a foundation in Canada?

Starting a foundation typically costs between $5,000 and $15,000. This includes legal fees for incorporation ($2,000-$8,000), application fees to Canada Revenue Agency, accounting setup, and initial administrative costs. Annual operating costs range from $3,000-$10,000 depending on the foundation's size and activities.

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

A foundation is a general term for charitable organizations that distribute grants. A private foundation is a specific type funded primarily by one source (individual, family, or corporation) with more control over grant-making. Public foundations receive donations from multiple sources and have broader public involvement in their governance.

What is the alternative to a private foundation?

Main alternatives include donor-advised funds (simpler and cheaper to set up), charitable remainder trusts, direct giving to existing charities, or establishing a fund within a community foundation. Donor-advised funds offer similar tax benefits with less administrative burden and lower minimums.

What is the structure of a private foundation?

A private foundation operates as a non-profit corporation with a board of directors (minimum 3 members). The structure includes founding documents, bylaws, and policies for grant-making. The board oversees operations, approves grants, and ensures compliance with charitable regulations and annual disbursement requirements.