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Creation of Private Foundations

  • Creation of Private Foundations

    Typically, a private foundation is a foundation which receives most of its funds from a single source, and which makes grants to registered charities.

    The directors do not deal at arm’s length with each other.  Most private foundations do not conduct charitable work themselves; instead they make grants to charities that do the work.

    A donor may create a private foundation and support various charities through grants from the foundation. Individuals with significant wealth are the most likely to create private foundations.

    The motives for creating a private foundation could be any or all of the following:

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      Jonathan Grant
    • The donor’s assets can be kept intact.
    • The donor retains control of the investment of donated assets. This is especially important if shares in privately owned corporations are contributed.
    • The donor’s name, or the family name, can be perpetuated through the foundation.
    • Solicitations for support may be directed to the foundation rather than the donor personally.
    • The foundation may favour certain types of charities or causes the donor cares most about.
    • The donor may be reluctant to give a large capital asset to a charity that he or she does not control, but is comfortable distributing income (rather than capital) to the charity.
    • The donor may wish to involve children and other family members in charitable causes. By helping run the foundation, the children may develop civic responsibility and managerial skills.

    Donor Advised Funds

    Alternatively, a donor may create an advised fund or funds within a community foundation. A donor advised fund enables the donor to be involved in selecting charities to receive grants. 


    Outright Gifts of Publicly Traded (Listed) Securities to Private Foundations

    Some donors may wish to donate publicly traded securities directly to their private foundation for charitable purposes. The foundation then makes grants to various charities.
     

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    David Denning

    Benefits to the donor

    • The donor receives an immediate donation receipt for the fair market value of the donated securities, calculated the same way as for gifts of publicly traded (listed) securities to public charities.
    • When securities are transferred to a private foundation the donor is taxed on 50% of the capital gain. The 0% inclusion rate for gifts of publicly traded securities applies only to gifts to public charities; however, the tax credit will exceed the tax on the gain, resulting in net tax savings.
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    Janice Link

    Important note

    Planned gifts can provide beneficial results for a donor but, in order to ensure that all relevant issues have been considered and addressed and that all Income Tax Act, Canada provisions and regulations are met, prospective donors should seek qualified legal and accounting advice.


    Give Green Canada acknowledges and thanks Lorna Somers and Frank Minton for pre-approving the use of their book Planned Giving for Canadians as the basis for the information provided about different types of gifts.

     

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