Endowments are essentially an investment fund that is established by a charity or foundation and are commonly used by these organizations. Endowment funds provide organizations with the financial support to maintain programs well into the future and are often designed for existing in perpetuity (forever).

When you donate money or property to a charity, you may specify this as an endowment gift. Your donation is then invested, and any investment income generated is used to carry out the charity’s work while keeping the principal amount intact. 

In Canada, a registered charity must spend a minimum amount (known as the disbursement quota or DQ) each year on its charitable activities or gifts to other qualified donees, such as other registered charities. 

Charitable foundations may be either public or private foundations, but they are still required to be registered under Canada’s Income Tax Act. Philanthropic foundations are not permitted to carry on their charitable activities, but rather they operate by funding other charitable organizations. Charitable foundations (like charitable organizations) are also exempt from paying income tax and can issue tax receipts for donations. This is very important so individual donors like yourself can use these receipts to reduce personal taxes through the charitable donation tax credit.

Private foundations differ from their public counterparts because they tend to receive most of their funding and are managed by one person or by a group of non-arms’ length (often related) persons. The growth in the use of charitable gift funds or donor advised funds has provided an opportunity for families to direct the support of their donated dollars to organizations they deem appropriate without incurring the expense or delays in having to put in place the infrastructure needed for a private foundation.