Before you decide to register a charity with the Canada Revenue Agency (CRA), you should consider other possible ways of achieving your goals. Being a registered charity involves many challenges, obligations, and related costs, so it is wise to look at all the alternatives and select the one that will best help you meet your goals.
If your goal is to carry on a specific charitable program or activity, consider alternatives to establishing a charitable organization. If your goal is to ensure that a significant donation of funds is used for a specific purpose, both now and in the future, consider alternatives to establishing a foundation.
Alternatives to establishing a charitable organization
If your goal is to operate a specific kind of program or activity to achieve your charitable aims, there are various ways of doing this without creating a separate registered charity. Consider the following.
Working with an existing charity
With some 85,000 charities in Canada, it is very likely that a registered charity already exists that is working to achieve the charitable aims that you have in mind. It is also very likely that this charity would be delighted to hear from you.
Whether you are bringing volunteer talent and skills, money, or just a great idea about how to achieve your goals, it is very possible that another charity with similar goals would be in a good position to work with you to help bring your ideas to life. In fact, by working together, you may be able to improve even further on your good idea! And the existing charity will already have charitable registration, as well all the infrastructure in place to meet CRA obligations and properly manage and control operations.
How can you find possible charities to work with? You can start by searching the charities listings through CharityData. Using the advanced search feature, you can identify charities by name, location, or category of charity. You can also use a more broadly based Web search to find the websites of Canadian charities. Or you can ask other experienced people in the sector for referrals to organizations that they know.
When approaching a charity to discuss the possibility of working together, understand that most charities are already frantically busy. To be taken seriously, you should be prepared to share your own work, plans, and budgets, rather than simply talking about your great idea. Understand as well that most organizations have their own internal review and approval processes, and their own priorities. However, if you have a well-thought-out plan that addresses how you will accomplish your programming goals, including how you intend to resource it, and it is within the core mission and objects of the other organization, you have a good chance at getting a fair hearing.
Operating as a nonprofit
If what you want to do is partially charitable (according to the legal definition) and partially not, operating as a nonprofit is the likely solution. (If your activities are exclusively charitable, however, you must be a registered charity.) Many great charitable works are done by nonprofit organizations without registered charitable status.
Although nonprofits are not able to issue tax receipts, they have somewhat greater latitude as to how they can raise funds and operate. For example, CRA limits on the political activities of charities do not apply to nonprofits. Nor do CRA rules on the disbursement quota or its fundraising guidelines.
If you plan on raising most of your funds from activities such as fundraising events where no receipts need to be issued and from user fees, there may be little or no advantage (and several disadvantages) to operating as a registered charity.
Operating as a business
You may also consider operating your program or activities as a business. For example, if you expect user fees to more than cover all of the costs of offering a program, it may be that a for-profit business model is the best approach. The service or activity you offer may still be "good" and may benefit participants or the community at large, even though it pays for itself. This is often referred to as carrying on a social enterprise.
In such a case, you will have to pay income taxes on any profits, but if profits are small or are reinvested in growing the organization and its programs, the amount of tax may actually be small, and paying them may be easier -- and cheaper -- than dealing with the many constraints of charitable registration. As well, businesses can donate up to 75% of their net income to charity, thereby reducing the amount of tax that needs to be paid.
Finally, businesses are treated far more favourably when it comes to GST/HST/QST than are charities: businesses generally get back, through input tax credits, all of the GST/HST/QST that they pay, while charities only get about half of that tax rebated to them. A charity's GST/HST/QST tax burden can be significant, and may be much greater than the income taxes that would be owing if the organization were simply a business.
Some activities that are designed to be social enterprises (that is, combining activities that are good for the community with modest profits) could be better suited to a for-profit business model than to registered charitable status.
Alternatives to establishing a foundation
If your goal is to ensure that a significant donation is used for the purposes you intend, both now and in the future, there are various ways of doing so without creating a separate foundation. Consider the following:
Making a restricted donation to an existing charity
Large donations are often made with certain restrictions or directions. As a condition of accepting the gift, the receiving charity is legally obliged to respect these conditions. As the conditions are being drafted and agreed upon with the charity, the donor has a reasonable degree of control. However, after the donation has been made, it will not be possible to change these conditions, although the charity can be granted the right to change these conditions.
It is strongly recommended that you discuss your proposed conditions in detail with the receiving charity before making the gift. This will ensure that when the conditions are drafted, you will accomplish what you intend. It will also ensure that the charity understands, accepts, and supports the conditions. For example, if you direct the income from your donation to support a specific charity program, you can ensure in discussions with the charity that they are intending to continue the program, have other adequate funding in place (or that your funding is adequate on its own) to continue the program, and so on. The charity can also help you identify alternatives for future funding if the program ends (for example, if it achieves its goals).
An advantage of this approach is that an existing operating charity will likely have the expertise and insight to help you direct your funds where they will achieve what you want them to. It will also likely have competent and committed staff or volunteers who can make sure that your gift continues to be well used into the future.
Creating a donor-advised fund
Creating a donor-advised fund has some similarities to creating your own private foundation, but without the administrative, regulatory, managerial, and operational burdens. Donor-advised funds are generally operated by public foundations or charitable organizations as a means of encouraging philanthropy and support for certain types of causes. The public foundation deals with the burdens and spreads the cost of doing so across many donors. In this way, it can also afford to develop expertise in these areas that a single private foundation may not be able to. For example, by pooling funds from many donations, it becomes more cost-effective to engage professional investment advisors to manage these funds.
After making the donation, the donor retains the ability to recommend (but not legally control) to whom grants are given by the fund manager. The board of the recipient charity must exercise ultimate control, of course, but within that constraint can consider the recommendations of the donors.
There are several advantages to this approach. Creating a donor-advised fund allows you to:
avoid the administrative and other headaches of operating a foundation;
enjoy professional/expert services (such as investment management and detailed reporting) and low costs (by spreading fixed administrative costs over several donations);
retain control over future grants (within broad limits); and,
retain naming privileges over the fund created.
One fast-growing category of donor-advised funds is community foundations. Though generally focused on supporting charitable activities within a specific community, there need not be community-based restrictions on giving. For more information, or to locate a community foundation near you, visit Community Foundations of Canada.
Donating to another foundation which you trust
If you simply want to make sure that the funds you donate are being intelligently and effectively used, without directing their specific use, making an unrestricted donation to a foundation whose work you respect and trust may be the route to take.