The Canadian Charity Law Podcast | CRA Compliance for Private Foundations

This episode is a general guide to Canadian tax compliance for private foundations.

It details the administrative, financial, and operational restrictions placed on these foundations, including requirements for corporate filings, annual information returns, and disbursement quotas.

The guide also covers tax implications for donations, rules on loanbacks and investments, and the impact of provincial statutes. Essentially, the guide provides a comprehensive overview of the legal and regulatory framework governing private foundations in Canada, and emphasizes compliance to avoid penalties.

This episode is sponsored by B.I.G. Charity Law Group Professional Corporation, a Charity Law Firm serving charity and not-for-profit clients across Canada with registration and governance, and B.I.G. Charity Accounts Group, a bookkeeping firm serving Canadian charities with all their financial and tax filing needs.

https://www.charitylawgroup.ca/
P: 416-488-5888

https://www.charityaccountingfirm.ca/
P: 289-301-8883

Creators & Guests

DJ

Producer

Dov Goldberg, J.D.

Dov Goldberg is a manager partner at B.I.G. Charity Law Group Professional Corporation, a Charity Law Firm Providing Services Exclusively to Charities Across Canada

What is The Canadian Charity Law Podcast ?

Exploring the ins-and-outs of Canadian Charity Law in a way that can be understood by the layperson, including Charity Registration, Not-for-Profit Incorporation, Charity Governance, Charity Fundraising, Tax Receipting, and much more!

David: 00:00

Ready to jump into the world of private foundations in Canada?

Sara: 00:03

Sounds good to me.

David: 00:04

It's a great way to give back, but, there are definitely some things to be aware of.

Sara: 00:08

Definitely not as easy as just, you know, writing a check.

David: 00:11

Right.

Sara: 00:12

Lots to consider.

David: 00:13

That's what this deep dive is all about.

Sara: 00:15

Exactly. We're gonna be looking at a guide to CRA compliance for private foundations in Canada.

David: 00:21

By the B. I. G. Charity Law Group.

Sara: 00:23

A really great resource for anyone looking to start a foundation.

David: 00:27

Yeah. It really lays everything out.

Sara: 00:29

Demystifies the whole process.

David: 00:31

Alright. Well, let's start with the administrative and financial side.

Sara: 00:33

Okay. Great place to start.

David: 00:35

You know, the guide mentions regular meetings, tons of documentation, filings with the government. Sounds pretty intense.

Sara: 00:42

Transparency and accountability are key when it comes to private foundations. It's a lot like a publicly traded company. The CRA wants to make sure every dollar is being used effectively.

David: 00:52

So they're really keeping a close eye on everything.

Sara: 00:55

Oh, yeah. They wanna see those detailed records.

David: 00:57

And that's where the annual information return comes in.

Sara: 01:00

Yeah.

David: 01:00

Right? The form d 3010.

Sara: 01:01

Exactly. That's the foundation's report card. The CRA uses it to scrutinize all their activities, all their finances. They wanna make sure you're actually doing what you said you'd do.

David: 01:11

So no more stuff and receipts in a shoebox?

Sara: 01:13

Nope. Remember that WE charity scandal back in 2020? Lack of transparency, questionable financial practices, it all came crashing down. Proper bookkeeping, receding, audit preparedness, all essential.

David: 01:27

Makes sense. You wanna be confident in showing everyone just how much your foundation is doing. Now it's not just the feds we have to think about. Right? Provinces have their own regulations too.

Sara: 01:36

Right. Let's look at Ontario. They have the public guardian and trustee, the Charities Accounting Act, the trustee act, 3 watchdogs making sure everything is being done by the book.

David: 01:46

It's like building a house. You need a strong foundation, yeah, but you also need those walls and the roof. The feds set the foundation. These provincial bodies are the rest that extra protection.

Sara: 01:55

I like that analogy. Really highlights how important it is to be on top of all the regulations, both federally and provincially. Now are you ready to get into the thou shalt nots of private foundations?

David: 02:06

Hit me with it. What can't we do?

Sara: 02:09

Okay. Well, first up, no business activities. Big one. The CRA is adamant that foundations have to focus on their charitable missions. No getting sidetracked by commercial ventures could cause conflicts of interest.

David: 02:22

So if I wanted to, say, sell candles to raise money, that wouldn't fly.

Sara: 02:26

Nope. There are a few very specific exceptions, but, generally, running a business is a no go. Remember that foundation that invested in a tech startup? Caused a ton of controversy, big penalties too.

David: 02:37

No side hustles for foundations then. Got it. What about debt? Can I take out a loan to buy a building?

Sara: 02:43

Debt can be tricky. There are some cases where it's allowed, like, to cover operating costs or to acquire investments that help the foundation, but the CRA is really strict about it. They don't want foundations taking on too much risk or using those loans for anything that isn't charitable.

David: 02:57

So no fancy fundraising galas funded by a loan?

Sara: 03:01

Exactly. It's about being responsible with your finances and fulfilling that charitable mission.

David: 03:06

Makes sense. What's the next no no?

Sara: 03:09

Control of corporations. Generally, private foundations can't control another corporation even if that corporation is doing charitable work.

David: 03:16

So many rules. How do we keep track of it all?

Sara: 03:19

This is where getting some expert advice can be really valuable. The B. I. G. Charity Law Group can help with that.

David: 03:25

Okay. Good to know. It's better to be safe than sorry, especially when it comes to something like this.

Sara: 03:29

I agree. Now the last restriction to be aware of is the disbursement quota.

David: 03:33

The DQ. What is that?

Sara: 03:35

Basically, it makes sure that foundations are actively using their resources. It requires them to spend a minimum percentage of their assets each year on charitable activities.

David: 03:46

Can you give me an example?

Sara: 03:47

Sure. Say your foundation has a $1,000,000 in assets. The d q means you'd have to spend at least 3.5% of that every year, which is $35,000 on charitable activities.

David: 03:58

So it's a use it or lose it kinda thing?

Sara: 03:59

It's all about keeping those funds moving and making a real difference.

David: 04:03

I like it. Okay. So we've covered the thou shall nots. What about these tax traps the guide talks about? I'm curious to learn more about that.

Sara: 04:12

Sure. Let's get into that then. Alright. Let's get into that then.

David: 04:15

Tax traps,

Sara: 04:17

Sounds a little ominous.

David: 04:19

Well, it's not all doom and gloom, but there are definitely some things to watch out for.

Sara: 04:23

Okay. Like what? Give me an example.

David: 04:24

Donating ecologically sensitive land.

Sara: 04:27

Oh, interesting.

David: 04:28

Seems like a great idea on the surface. Right? Protect the environment, support your foundation, everyone wins.

Sara: 04:34

Yeah.

David: 04:34

But there's a catch.

Sara: 04:35

I was wondering about that.

David: 04:37

Donating that kind of land, it doesn't actually exempt the donor from capital gains tax.

Sara: 04:43

Oh, so there's a financial downside.

David: 04:45

Could be. Yeah. And that might make some people think twice about donating.

Sara: 04:49

Yeah. That makes sense.

David: 04:50

Another tricky area is donating nonqualifying securities.

Sara: 04:53

Nonqualifying. What does that mean?

David: 04:56

Basically, investments that don't meet certain CRA criteria.

Sara: 04:59

Ah, okay.

David: 05:00

And if you donate those, it can have some unexpected tax consequences.

Sara: 05:04

For the donor and the foundation.

David: 05:05

Yep. Sounds complicated. It can

Sara: 05:07

be Yeah. Which is why it's so important to get professional advice.

David: 05:11

Yeah. Better to be safe than sorry.

Sara: 05:13

Definitely. Okay. So we've covered a lot of the groundwork.

David: 05:16

We have. Yeah.

Sara: 05:17

Now let's talk about the heart of it all, those charitable activities. Okay. So let's say

David: 05:20

I have everything set up. Everything's running smoothly. What can I actually do with my foundation? How can I make a difference? Well, the sky's the limit, really.

David: 05:24

Yeah. You could support all kinds of causes, medical research, educational scholarships,

Sara: 05:35

environmental conservation, anything you're passionate about.

David: 05:39

Wow. So many options.

Sara: 05:40

It's about finding what resonates with you. What are you passionate about? What needs to change in the world?

David: 05:46

I like that. Finding that intersection between your own values and what the world needs.

Sara: 05:51

Exactly.

David: 05:51

So it's not just about money?

Sara: 05:53

No. It's about much more than that.

David: 05:54

Like what?

Sara: 05:55

Well, your foundation can be a platform. Right? You can raise awareness, advocate for change, inspire others to get involved.

David: 06:02

That ripple effect?

Sara: 06:03

Exactly. You can amplify your impact far beyond those initial donations.

David: 06:08

Now I know regulations are always changing.

Sara: 06:11

They are. It's true.

David: 06:12

So how do we keep up? Do we have to constantly check the CRA website?

Sara: 06:17

You could, but there are easier ways. Oh. Yeah. Organizations like the B. I.

Sara: 06:21

G. Charity Law Group, they provide updates, analysis. They break it all down for you.

David: 06:26

Makes sense.

Sara: 06:27

Or you can always talk to a legal expert.

David: 06:29

Right. Someone who really knows the ins and

Sara: 06:30

outs. Exactly.

David: 06:32

So are there any common mistakes that foundations make Yeah. Even when they have good intentions?

Sara: 06:38

Oh, yeah. Definitely. Even with the best intentions, things can go wrong.

David: 06:43

Like what? What should we be careful about?

Sara: 06:45

Well, one common one is failing to meet that disbursement quota we talked about.

David: 06:50

The use it or lose it rule.

Sara: 06:51

Exactly. You have to make sure you're spending that minimum amount on charitable activities each year.

David: 06:55

Otherwise

Sara: 06:56

Penalties from the CRA, in some cases, even losing your charitable status.

David: 07:00

Woah. Okay. So that's serious.

Sara: 07:02

Another big one is improper record keeping.

David: 07:05

Really?

Sara: 07:05

Yeah. Those records are crucial, not just for the CRA, but for tracking your own progress.

David: 07:09

So we need a good system in place.

Sara: 07:12

Absolutely. You wanna be able to demonstrate your impact, show everyone the value you're creating.

David: 07:17

Okay. All of this sounds pretty complex.

Sara: 07:19

It is, but there are tools out there to help. Oh. Yeah. Software programs specifically for managing charities.

David: 07:25

Really?

Sara: 07:25

Oh, yeah. Accounting, grant management, donor tracking, it can all be streamlined.

David: 07:30

Like a personal assistant for your foundation.

Sara: 07:32

Exactly. It frees up so much time and energy.

David: 07:35

So it's not just about passion. It's about strategy too.

Sara: 07:37

Absolutely.

David: 07:38

All the resources available to maximize your impact.

Sara: 07:41

Now speaking of different approaches, have you heard of donor advised funds?

David: 07:47

DAFs. Yeah. I've heard the term, but I'm not really sure what they are.

Sara: 07:50

Well, think of it like a charitable savings account.

David: 07:52

Okay. Interesting.

Sara: 07:53

You make a donation, get that immediate tax benefit, and then you can recommend grants to your favorite charities over time.

David: 08:00

So I have some control over where the money goes.

Sara: 08:02

Exactly. It's a really flexible way to give you can respond to emerging needs, support long term projects, even get your family involved in the decision making.

David: 08:11

So it's pretty good.

Sara: 08:12

They do have some downsides, though.

David: 08:13

Like what?

Sara: 08:14

Well, there's usually a minimum donation amount.

David: 08:16

So it's not for everyone?

Sara: 08:18

Right. And you also wanna do your research on different providers. They all have different fees and investment options.

David: 08:23

So it's about finding the right fit.

Sara: 08:25

Exactly.

David: 08:25

Okay. So DFS, another tool in the toolbox.

Sara: 08:28

Yep. There are so many different ways to give.

David: 08:31

It's about finding the right one for you. Exactly. Now I am really curious about international philanthropy.

Sara: 08:36

Yeah. That's a whole other world.

David: 08:38

Let's explore that next. Let's explore that next.

Sara: 08:40

International giving. Taking your philanthropy global.

David: 08:44

It's exciting, but also a little intimidating, to be honest.

Sara: 08:47

I get it. There's so much to consider, so many different factors at play.

David: 08:51

Okay. Let's say I'm passionate about education. I wanna support kids in a developing country. Where do I even start?

Sara: 08:57

Well, the first step is research. Always research.

David: 08:59

Okay. So what am I researching exactly?

Sara: 09:01

The local context, the specific needs in that community, what organizations are already doing good work there.

David: 09:09

So it's more than just picking a charity and sending them money.

Sara: 09:11

It's about building relationships, finding partners who really understand the situation on the ground.

David: 09:18

Makes sense. Yeah. We wanna be helpful, not just throw money at a problem.

Sara: 09:22

Exactly. You wanna make sure those funds are being used effectively and sustainably.

David: 09:26

Now the guide talks about cross border giving and all the legal stuff involved. Is it really complicated?

Sara: 09:33

It can be. Yeah. Uh-huh. Different tax laws, currency exchange. You have to make sure you're following the rules in both countries.

David: 09:40

It's starting to sound like I need a lawyer.

Sara: 09:42

Well, it's definitely a good idea to get some expert advice.

David: 09:45

Okay. So lawyer, check. What else?

Sara: 09:48

You also wanna be really careful about who you're partnering with. Do your due diligence. Are they a reputable organization? Are they transparent with their finances?

David: 09:57

Trust but verify.

Sara: 09:59

Exactly. You're entrusting them with your resources, your reputation, so you wanna make sure it's a good fit. Okay. Beyond the legal stuff, are there any make sure it's a good fit. Okay.

Sara: 10:03

Beyond the legal stuff, are there

David: 10:03

any ethical things to think about with international giving? Oh, absolutely. Humility is key. You don't wanna come in with a savior complex. These communities

Sara: 10:08

have their own strengths, their own solutions.

David: 10:17

It's a partnership, not a rescue mission.

Sara: 10:19

Exactly. Be mindful of the power dynamics. You don't wanna create dependency or accidentally undermine local initiatives.

David: 10:27

So how do we do that? How do we make sure we're being respectful and effective?

Sara: 10:31

Transparency, communication, and accountability. Be clear about your goals, track your impact, be open to feedback.

David: 10:39

And be willing to learn and adapt along the way.

Sara: 10:41

International philanthropy is a journey, not a destination. Embrace the complexities, the challenges, and the incredible potential for positive change.

David: 10:50

This has been such an insightful conversation. Any final words of wisdom for those of us who are inspired to take our giving global?

Sara: 10:56

Don't be afraid to dream big, but start small. Build those relationships, learn from experience, celebrate those small victories, and remember the power of collective action. We can achieve amazing things when we work together.

David: 11:09

I love that. Well, that brings us to the end of our deep dive into private foundations. Thank you so much for sharing your expertise with us today.

Sara: 11:17

It was my pleasure. I hope this conversation inspires everyone to think bigger and bolder when it comes to their charitable giving.

David: 11:24

To our listeners, remember, the world needs your passion, your generosity, your commitment to making a difference. Go out there and make it happen.