When registering a charity, the Department designates it as
a "charitable organization," a "public foundation,"
or a "private foundation," depending on its structure,
its source of funding, and the way it operates.
A registered charity is designated as a "charitable organization"
if
- it devotes its resources mainly to charitable activities
carried on by itself;
- more than 50% of its directors, trustees, officers or similar
officials deal with each other and with each of the other directors/trustees
at arm's length (see below for a definition of "arm's length");
and
- not more than 50% of the funds that the charity has received
have come from one person or organization, or from a group of
people or organizations that do not deal with each other at arm's
length.
However, some organizations are excepted, so that large gifts
from them do not affect the charity's designation. The excepted
organizations are the federal government, a provincial government,
a municipality, another registered charity that is not a "private
foundation", or a club, society, or association that the
Act treats as a non-profit organization.
A registered charity is a "public foundation" if
- it is constituted and operated exclusively for charitable
purposes;
- it is a corporation or a trust; and
- it gives more than 50% of its income annually to qualified
donees.
People at arm's length to each other must form a majority
of its board of directors/trustees and its funding must come
from various sources. Charitable organizations focus on carrying
out charitable activities, while public foundations focus on
raising funds to support operating charities.
On the other hand, a registered charity is a "private
foundation" if
- it is constituted and operated exclusively for charitable
purposes;
- it is a corporation or trust; and
- it is not a "charitable organization" or a "public
foundation".
An entity is designated as a "private foundation"
rather than a "charitable organization" or a "public
foundation" because of the extent to which those who fund
or control it are not operating at arm's length.
