There are three types of designations registered charities may hold:
1. Charitable Organization
2. Private Foundation
3. Public Foundation
A charitable organization generally engages in charitable activities. An example of this would be a hospital.
A private foundation can carry out charitable activities, but it normally gives funds to another registered charity (or other qualified donee). The foundation will be classified as Private if more than 50% of its board of directors or trustees deal with each other in a NON arm’s length manner (meaning there are close ties) OR if more than 50% of the money donated comes from people who are not dealing at arm’s length with each other. Many private foundations are single family foundations.
A public foundation gives more than 50% of its annual income to other charities (or other qualified donees), although it can also carry out its own charitable activities. Contrary to private foundations, more than 50% of the board of directors or trustees must deal at arm’s length (meaning there are less close ties between members). It will usually receive funds from a number of arm’s length sources as well. An example of a public foundation cited by the CRA would be a hospital foundation which engages in fundraising activities which generate funds that are then given to the charitable organizations (the hospitals themselves).
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RRSPs: The Definitive Book on Registered Retirement Savings Plans