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Community foundations offer an attractive alternative
to the expense and administrative burden of setting up and
maintaining a private foundation.
Community foundations are registered as charities
under the provisions of the Income Tax Act, and designated
as public foundations.
A community foundation’s mission is to
enhance the quality of life in its geographic area. It does
this by receiving donations and distributing the income earned
to charitable organizations. It is a union of many gifts which
come from individuals, families, businesses, charitable foundations
and estates. From these gifts and bequests, community foundations
build and maintain endowments, the earnings from which are
used to solve problems and advance the interests of the community.
All funds, whether large or small, receive the advantages
of professional administration at a very low cost, and donors
are usually provided with the maximum tax benefits allowed
by law.
The first Canadian community foundation was
established in Winnipeg in 1921. The Community Foundation
of the North Okanagan was incorporated pursuant to the Society
Act of British Columbia and became a federally registered
charity in 1975. The Foundation has a governing body that
is independent and broadly representative of the public. The
Foundation’s ultimate aim is to strengthen community.
There is a network of more than 130 community foundations
across Canada with over $1.6 Billion in assets.
Community foundations share a common promise
and premise that the intentions of the donors to the local
community will forever be translated into meaningful charitable
purposes.
Community foundations offer flexibility to the
donor. At the time of creating a fund within the foundation,
donors can name the fund, the purpose of the fund, and even
the charity to be supported. The principal is held in perpetuity,
and the earnings distributed to charitable organizations of
choice.
A donor wishing to create a fund has simply
to instruct the community foundation in writing of the name
of the fund and what he or she wants done with the income
from the fund. Subject to this being accepted by the Board
of Directors of the foundation, and on receipt of the gift,
these wishes will be carried out.
Since a community foundation is a public foundation,
the income tax rules which affect it are significantly less
onerous than those affecting a private foundation. For example,
if a private foundation holds shares of any corporation with
which it does not deal at arm’s length (referred to
as a non-qualified investment) and if, in any year, it does
not receive at least a prescribed minimum return on that investment,
a penalty tax is levied on the corporation equal to the amount
of the deficiency. However, since this penalty tax does not
apply to public foundations, it may be preferable to give
such a security to a public foundation.
There are no legal fees attached to setting
up a fund in a community foundation, and the community foundation
assumes the tax and the reporting responsibilities for the
fund. The community foundation handles grant applications,
disbursements, and receipts; in fact, all the administrative
and financial details of the fund. The donor’s fund
is named in annual reports and other publications of the community
foundation and thus receives recognition in perpetuity.
(Excerpt from Establishing a Private Foundation,
Canadian Centre for Philanthropy, 1987)
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