Holding over $36 billion in assets, Canadian foundations are an important part of the charitable sector. As the role they play becomes more diverse, understanding the way Canadian foundations operate and the regulations that govern them becomes increasingly important. But for those of us who avoid reading Canada Revenue Agency documents in our spare time, these regulations can appear complex and daunting.
We sat down with Mark Blumberg, a charity lawyer based in Toronto, for some free legal advice. Mark gave us insight into five common foundation myths. As well as a charity lawyer, Mark is editor of several Canadian charity law websites, including globalphilanthropy.ca, smartgiving.ca and canadiancharitylaw.ca.
Myth 1: All foundations give money to other charities
In Canada, we have three types of charity designations: Charitable Organizations, Public Foundations, and Private Foundations. “The distinction is not as important as one may think… The term foundation by itself doesn’t mean as much as some people assume,” says Mark. “I would say that the lines [between foundations and charities] have been blurred for a very long time.”
The term foundation is not synonymous with grantmaker. Many Canadian foundations are setup in order to perform their own charitable work and will not provide funds to other charities. Mark provides us with a good example of this: a family wishes to do a project in a foreign country. Because the board in this hypothetical situation would be made up mostly of related people, it would likely be designated a private foundation, even though it would only be performing direct charitable work.
When it comes to granting behavior, less than one third of Canadian foundations have made grants within the last few years. Instead, many of them have been established to raise funds for an associated charity (i.e. a hospital foundation), or are conducting their own charitable activities. For fundraisers, a funding resource like the Grant Connect can be a helpful tool for filtering out grantmaking foundations from the larger general pool of foundations.
Myth 2: The assets of a foundation alone describe its ability to give
Although it can be quite helpful to evaluate potential donors based on the size of their asset base, Mark advises against judging foundations by assets alone. He cautions grantseekers against making generalizations about foundations, “Once you know one foundation, you know one foundation.”
In Canada, foundations with more than $25,000 in assets are required to spend 3.5% of their assets otherwise not used in charitable activities or administration, as are charities organizations. However, this rule does not necessarily mean you can gauge what a foundation will give by knowing their assets alone. “It doesn’t impress me that a foundation has a billion dollars in the bank,” says Mark. “It’s how much are they actually putting out there that’s of use and that will vary tremendously from foundation to foundation. Some go for the minimum legal amount they can disperse, whereas others are trying to disperse as much as they possibly can; in many cases they may be dispersing close to 100% of the funds that come into the foundation.”
Myth 3: Only registered charities can receive gifts from foundations
Being a qualified donee is often a requirement to receive grants from foundations and corporations, but this list includes more than just registered charities. Qualified donees include but are not limited to: registered charities (including registered national arts service organizations), listed Canadian municipalities, and registered Canadian amateur athletic associations. The full list of qualified donees is available through the CRA’s Other qualified donees listings.
Myth 4: Foundations should ask charities for official donations receipts
A benefit of being a qualified donee is that registered charities – including foundations – can make gifts to you. However, Mark warns that when a charity receives a gift from another charity, it should not be issuing an official donations receipt for income tax purposes, as it would for an individual or a corporation. “Foundations should not ask registered charities they are giving money to for an official donation receipt. So many foundations are doing so, and it is not appropriate. [When] A Canadian foundation gives money to another Canadian registered charity, the Canadian registered charity receiving the money could issue a business receipt or a letter of acknowledgement, but not an official donations receipt for income tax purposes.”
Myth 5: Nonqualified donees cannot receive funding from any foundations
Mark points out that just because your nonprofit organization is not regarded as a qualified donee this doesn’t mean that foundations cannot give you money. It all depends on the charitable objects of the foundation. “The key thing that many foundations get confused about is that if they have broader object clauses, it may be possible for [them] to fund work that is being done on their behalf with a group that is not a qualified donnee, what is called a nonqualified donnee,” says Mark. He provides us with an example of a hypothetical foundation: “If it had an object clause that allowed it to deal with homelessness in Edmonton, it could decide it wants to work with [a nonprofit organization] that is doing good work helping the homeless. It could provide them with funds, even though they are not a qualified donnee or registered charity.”
The Canada Revenue Agency has helpful Guidance that can aid grantmakers and grantseekers understand the rules relating to direction and control: Using an Intermediary to Carry out a Charity’s Activities within Canada. Mark believes that there are often cases where the best recipient for a grant may not be a qualified donee. He is hopeful that many of our big institutional funders will become more flexible towards funding nonqualified donees, which would be great news for the 79,000 nonprofit organizations in Canada without charitable status.
Mark Blumberg is a charity lawyer based in Toronto, Canada. Mark is on the Executive of the Canadian Bar Association (CBA) National Charities and Not-for-Profit Law Section and is also on the Executive of the Ontario Bar Association (OBA) Charity and Non-profit law section. Mark is also the editor of www.canadiancharitylaw.ca – a Canadian charity law website and www.globalphilanthropy.ca – a Canadian website dedicated to legal and ethical issues for Canadian charities operating abroad. Written by Devon Hurvid and Alyssa Gebert, this blog post was featured in Grantseeker Monthly, the newsletter of the Canadian Directory to Foundations & Corporations.