You are a caring person, no doubt. Your considering what is the best way to contribute to a cause that you are passionate about. An option is to start a charity or foundation so you can efficiently funnel money to causes and provide donors with a tax receipt. And if you are honest, you always wanted a charity or foundation in your name–your legacy. Well, don’t do it!
Wait … I retract my advice, for a moment.
Why you don’t want to start a charity?
For clarity, there are three types of registered charities in Canada. Every registered charity is designated as either a:
- Charitable organization;
- Public foundation, or
- Private foundation
The difference between the three is their structure, its source of funding and operation. All are registered with the Canadian Revenue Agency (CRA). The income tax requirement is different depending on the type of charity.
For more information: Government of Canada types of registered charities
Perhaps you want to start a charity because there is a cause you care about and you want to heighten its awareness, take action to address it, or honour someone with it.
Whatever your motivator for going down this path, there are many elements to consider. It is not as easy as setting up a small private business. It can take up to 4 to 6 months to set-up a charity, and the time, energy, and cost can be significant. If that doesn’t deter you, adhering to the rules and regulations just might. Visit the Canadian Revenue Agency to find out more details… the list is too long to place here.
Start a charity can fragment donor dollars
As a business, setting up and running a charity is a full-time job. You will need to consider how to generate funds, public relations, marketing, people management, strategic direction, finance, and distribution. Meanwhile, during that time, you could have been much more productive in providing social awareness through other outreach programs and avenues.
Another reason not to start a charity, and this one I’m quite passionate about: we have over 86,000 charities in Canada alone. Surely one of them is supporting your cause? The more charities we have, the more we fragment the donor dollars. This has a negative effect on the overall impact we could have if working collaboratively
Collaborate with an existing foundation or charitable
Before setting off and trying to establish a new charity or foundation, consider the possibility of collaborating with an existing organization. You may find a charity that is flexible to align an initiative with your specific requirements.
My cause is women economic empowerment, and although many charities are doing excellent work, I was introduced to Frontier College, a registered Canadian charity focused on literacy.
They have a program for increasing literacy in indigenous communities. My company [Ignite Excellence at the time] donated to the charity. However, I wanted the money to be earmarked for a specific project where young female leaders would educate indigenous people. Frontier College set-up a program to facilitate my objective, allowing my charitable giving to stay in line with my cause.
Starting a charity in honour of family or friend
Due to tragic circumstances, families will often start a charity in a family members or friend’s name. It is understandable that you may want to honour their name, and starting a charity will ensure they live in our hearts and minds forever. It may be hard to hear, but to truly heal you may eventually need to remove yourself from the operation of the charity. Aligning yourself with an existing charity may be a better legacy solution.
Instead of Starting a Charity, consider:
- Donate to a charity that supports a specific cause.
- Volunteer or raise funds for a registered charity that supports your desired cause
- Offer to be on the board of directors for a specific a registered charity
- Participate in fundraising activities in honour of someone’s name, or sponsor a team to participate in honour of someone or your business.
- Set-up a Donor Advised Funds
Set-up a Donor Advised Funds to provide charitable giving
There is another option if you want to donate to various charities inline with one cause. For example, the YouMeWe Foundation Fund donates to several universities in Africa to provide scholarships to prospective women leaders. In this case, the best course was to set up a Donor Advised Fund.What to set up a charity? Don't consider alternatives including Donor Advised funds. #YouMeWeMovement #MyContributionCounts Click To Tweet
There are many advantages of this approach, most importantly, it saves time, is more cost-effective to set-up and to administer. Also, it is regulated, though no board of directors is required, tax receipts are issued immediately, and I can grant any time. It’s like hiring an expert team to start, administer, and report on the fund – all for a small administration fee.
The only drawback, which I have experienced is the values of the Donor Fund need to align with yours, and they need to have a registered charity in Canada. Through Tides Canada, I have been able to get funds to charities outside Canada, but not all Donor funds have this capability.
Private Donor Advised Funds to consider:
- Canada Giveshttp://www.canadagives.ca/donor-advised-funds/
- Gift Funds Canadahtthttp://giftfunds.com/establish-a-fund/
- Tides Canadahttp://tidescanada.org/approach/strategic-philanthropy/open-a-donor-advised-fund/
- Community Foundations of Canada. There 191 across Canada. Find a local foundation near you and chat with them about start-up options http://communityfoundations.ca/find-a-community-foundation/
Regardless of which approach you take, foundations can only grant to registered charities with a few exceptions as listed on the Canadian Revenue Agency site.
I often get asked, “How can I help someone in Africa with their project?” Firstly, the project needs to be a registered charity. Secondly, in most cases, it needs to be registered in your country i.e. Canada. If not, the alternative is just to give them the money (which has a host of other implications), or you suggest they become registered.
Without following the rules and regulations of managing a charity, the chances of you receiving donor support is slim. For many reasons, one of which is you won’t be able to issue a tax receipt.
Until next time, make your contributions count. #YouMeWeMovement #MyContributionCounts
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