The Structure and Operation of Canadian Corporate Foundations

Canadian corporate foundations occupy a unique space within the broader charitable sector, often blending private sector governance with public benefit mandates. These entities, typically established by business corporations, are registered charities under the Income Tax Act R.S.C. , 1985, c. 1 (the “Tax Act”) and are subject to the same regulatory framework as other charitable foundations. However, their operational realities and compliance obligations reflect both their corporate lineage and their charitable status.

The legal framework in Canada draws a clear distinction between charitable organizations and charitable foundations, each with different roles and operational models. The Tax Act defines charitable organizations as entities (incorporated or not) that are constituted and operated exclusively for charitable purposes and primarily conduct their own charitable activities. In contrast, a charitable foundation is defined as a corporation or trust that also operates exclusively for charitable purposes but is not a charitable organization; it typically supports charitable activities carried out by other organizations, although it may also undertake its own initiatives.^[1] Increasingly, corporate foundations are choosing to undertake direct charitable activities (such as community programs, educational outreach, or employee-driven volunteer initiatives) reflecting both their autonomy and their evolving role within the charitable sector.

Corporate foundations are generally structured as either public or private foundations, with private foundations being more common due to their close ties to a founding corporation. Public foundations generally receive funding from a broad base of donors and must maintain arm’s-length relationships among board members. Private foundations, by contrast, are typically funded and controlled by a single corporation, family, or related group, and board members are often not at arm’s length. These distinctions affect governance requirements and regulatory oversight of corporate foundations.

Fundraising and the issuance of tax receipts are central functions for corporate foundations, supporting both compliance and donor engagement. The Canada Revenue Agency (“CRA”) fundraising guidance contains distinct rules for hosting events and devoting resources to fundraising.^[2] Tax receipts are essential for charities because they allow donors to claim tax credits and encourage giving, and charities are required to issue receipts to comply with tax regulations. Some corporate foundations collaborate with receipting partners to issue tax receipts, while others manage receipting and administration internally or with support from the founding corporation through formal agreements.

Charities must spend a minimum amount of their accumulated capital each year on charitable activities. This spending requirement, called the annual disbursement quota, ensures that charities use their investments and savings to support their mission rather than simply holding onto funds. The annual disbursement quota is calculated based on the average value of property not used directly in charitable activities or administration over the previous 24 months. Each year, a foundation must spend at least 3.5% of its investment property valued up to $1 million on charitable activities. For any portion of investment property exceeding $1 million, the foundation must spend an additional 5%. Such spending (characterized as “disbursements”) may be made to “qualified donees,”^[3] which include registered charities and other prescribed entities. Some corporate foundations focus their giving on specific types of organizations that align with their founding purposes, while others adjust their philanthropic focus annually. Many involve employees and key stakeholders in grant decision-making, often aligning their giving with the mission and values of the business.

Recent changes to CRA rules may expand the opportunities for corporate foundations to support a wider range of charitable initiatives. Historically, corporate foundations have focused on making gifts to qualified donees. CRA previously took a restrictive approach to disbursements made to non-qualified donees, such as local grassroots non-profits, and required agency agreements or joint venture structures to ensure the foundation maintained direction and control over the use of its funds. This approach limited the interest of corporate foundations in supporting organizations outside the qualified donee framework. However, the regulatory landscape has changed. Under the new “qualifying disbursements” regime introduced in 2022, registered charities (including corporate foundations) may now make grants to non-qualified donees, provided the funds are used exclusively for charitable purposes and the charity maintains adequate documentation to demonstrate the use of grant money.^[4] As a result, there may be more opportunities and interest for corporate foundations to fund non-qualified donees, but foundations should review their purposes and seek advice to ensure compliance with these new requirements.

Corporate foundations have ongoing compliance obligations, notably the annual T3010 Registered Charity Information Return. In addition to charity reporting, they also have corporate compliance requirements, such as filing annual returns and maintaining extra-provincial registrations. If they are soliciting funds from employees and stakeholders outside the business, they may have additional compliance requirements as “soliciting corporations” under the Canada Not-for-profit Corporations Act.^[5] Corporate foundations need to keep proper books and records and hold proper Member and Director meetings. Principals of corporate foundations should seek legal advice to fully understand their corporate and tax obligations.

In summary, Canadian corporate foundations must navigate distinctions between public and private structures, fundraising methods and the issuance of tax receipts, spending requirements, and compliance obligations. As the sector evolves, legal experts can help foundations choose the best structure to meet their specific needs and goals, ensuring compliance and maximizing charitable impact.

^[1] Tax Act s.149.1(1).

^[2] “Fundraising by registered charities”, CG-013, issued April 20, 2012.

^[3] Tax Act s.149.1(1).

^[4] Canada Revenue Agency, “Registered charities making grants to non-qualified donees,” Guidance CG-032, issued December 19, 2023.

^[5] SC 2009, c 23.