The Canadian Revenue Agency (“CRA”) recognizes three types of registered charities: charitable organizations, public foundations, and private foundations. It is important that potential applicants for charitable status understand the differences between the three types of registered charities as successful applicants will be classified into one of the three categories by the CRA. Each type of charity is subject to slightly different rules for income tax purposes.

Charitable Organizations:

Charitable organizations primarily carry on their own charitable activities. More than fifty per cent of the charity’s directors are required to deal with each other at arm’s length. Charitable organizations have a variety of arm’s length donors such as individual members of the public and corporate donors.

An example of a charitable organization is Habitat for Humanity, which carries on its own charitable activities by building housing for low-income families.

Public Foundations:

Public foundations give more than fifty per cent of their annual income to other “qualified donees”, such as other registered charities. However, public foundations may also carry out some of their own charitable activities. Public foundations are typically created by a group of people wishing to raise funds to assist one or more other registered charities. More than 50 per cent of the directors of a public foundation must deal with each other at arm’s length. Like charitable organizations, public foundations have variety of arm’s length donors.

An example of a public foundation is the Royal University Hospital Foundation, which raises funds to donate to Royal University Hospital in Saskatoon, Saskatchewan.

Private Foundations:

Like public foundations, private foundations donate funds to other “qualified donees”, though they may also carry on their own charitable activities. Private foundations are typically created by a high net worth family that wishes to organize their charitable giving through an entity that they control. Unlike public foundations, fifty per cent or more of a private foundation’s directors do not deal with each other at arm’s length.

As an example, a private foundation could receive seventy per cent of its donations from a single family which also has three of the five seats on the board of directors for that foundation.

In order to determine their likely classification (and the potential impacts of such classification), non-profit organizations that are considering applying for registered charity status are encouraged to seek legal advice.