Why the CRA Ghosted Your Private Foundation Application (And How to Win Them Back)

Why the CRA Ghosted Your Private Foundation Application (And How to Win Them Back)

So, you’ve done well for yourself. Maybe you sold your business, your investments paid off handsomely, or you finally convinced your wealthy aunt that you were her favorite nephew. Whatever the reason, you’ve decided to join the ranks of philanthropic elite by starting your own private foundation in Canada. You’ve imagined the press releases, the galas, maybe even a building with your name on it.

Then you got the letter.

The Canada Revenue Agency—those delightful folks who live to audit your receipts and question your home office claims—has rejected your application. Welcome to the club nobody wants to join. Let’s talk about why this happened and, more importantly, how to avoid becoming a cautionary tale at your lawyer’s office.

You Thought This Was Going to Be Easy (Spoiler: It’s Not)

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Here’s the thing about starting a private foundation: it’s not like opening a lemonade stand. You can’t just slap together some paperwork, declare yourself a philanthropist, and start issuing tax receipts to your golf buddies.

The CRA application process can take anywhere from two months for “simple” applications to six months or more for “regular” ones. And trust me, if you’re reading this article because your application was rejected, yours definitely fell into the “regular” category—or worse, the “what were they thinking?” category.

Reason #1: You Confused “Private Foundation” with “Private Piggy Bank”

Let’s start with the most common misconception. Remember that businessman from our sources who, standing at his dying brother’s bedside, realized you can’t take your wealth with you? Well, he also learned you can’t use a private foundation as a personal ATM.

Once you donate property to a private foundation, it’s gone. Forever. You cannot retrieve it. Not for emergencies. Not for “just this once.” Not because you promised your kid you’d help with their down payment and forgot about it.

The CRA has seen it all: people trying to move money in and out of foundations for non-charitable purposes, treating the foundation like a flexible savings account with better tax benefits. This is explicitly prohibited, and attempting it is a fast track to rejection—or worse, revocation of charitable status if you somehow sneak through.

Real-life example: Imagine Uncle Bob sets up his foundation, donates $500,000, and then six months later decides he actually needs that money for his vacation property in Muskoka. Too bad, Uncle Bob. That money now belongs to charity. The CRA doesn’t care that your real estate agent assured you the cottage was a “can’t-miss opportunity.”

Reason #2: Your “Charitable Purpose” Was More “Vague Purpose”

To get CRA approval, you need defined charitable objectives. “Doing good things” doesn’t cut it. Neither does “helping people” or “making the world better” or any other fortune cookie philosophy you pulled from your vision board.

The CRA recognizes four charitable purposes: relief of poverty, advancement of education, advancement of religion, and other purposes beneficial to the community. Your application needs to clearly articulate which category you’re targeting and how you plan to achieve your goals.

What went wrong: You probably wrote something like “We want to support great causes in our community and help those in need.” The CRA read that and thought, “Cool story. Which causes? Which needs? How will you determine who to help? What’s your criteria?”

What you should have done: Be specific. Instead of “supporting education,” try “providing scholarships to low-income students pursuing STEM degrees at accredited Canadian universities.” See the difference? One sounds like a beauty pageant answer; the other sounds like a plan.

Reason #3: You Tried to Sneak in Private Company Shares (and Got Caught)

Oh boy. This is where things get spicy.

Remember that 2007 federal budget that made everyone excited because you could now donate listed securities without capital gains? Well, the government giveth, and the government also created the Excess Corporate Holdings Regime for Private Foundations.

Here’s the deal: if your foundation owns more than 2% of any share class of a private company, you enter what’s called the “Monitoring” range. Own more than 20%? Welcome to the “Divestment” range, where you have specific time frames to reduce your holdings or face penalties that would make a tax accountant weep.

The horror story: You donated 30% of your private company shares to your new foundation, thinking you were being generous. The CRA looked at this and saw a potential tax avoidance scheme. First-offense penalty? Five percent of the fair market value of those shares multiplied by your divestment obligation. Second offense within five years? That jumps to 10%. Fail to file properly? Another 10% penalty.

As one source wisely noted: “Unless there is a specific and immediate plan to redeem the shares caught by this legislation, I strongly suggest that donors not use this type of property in private foundations.” Translation: Don’t even think about it unless you have a rock-solid exit strategy and a lawyer who specializes in making miracles happen.

Reason #4: Your Family Involvement Plan Looked Like a Dynasty

Private foundations can absolutely be family affairs. In fact, the majority of them are. Family members can sit on the board, make decisions together, and create a lasting legacy. It’s actually one of the beautiful things about private foundations—three generations working together to do good.

But here’s where people trip up: they don’t think through the governance structure, conflict-of-interest policies, or succession planning. They create a board that’s 100% blood relatives with no thought to what happens when Uncle Jerry and Aunt Martha stop speaking to each other over that incident at Christmas 2023.

What the CRA saw: A governance structure that looked less like a professional charitable organization and more like a family reunion where someone’s going to end up crying in the bathroom.

What you needed: Clear bylaws. Defined roles. Conflict-of-interest guidelines. Decision-making processes that don’t involve shouting matches. As one third-generation foundation chairman wisely noted: “Set conflict of interest guidelines. Have some policies or a healthy discussion that is recorded for posterity for successive meetings on how personal interests should be dealt with.”

Reason #5: You Underestimated the Money (and Overestimated Your Commitment)

Let’s talk about everyone’s favorite topic: money.

The setup costs: Legal fees for incorporation and CRA registration typically run between $5,000-$15,000, though more complex foundations can cost up to $25,000. 

The minimum investment: While there’s technically no minimum amount required to start a foundation, most experts recommend at least $1 million. Why? Because of the disbursement quota.

The disbursement quota: This is the kicker that trips up many applicants. Your foundation must spend 3.5% of its invested assets annually on charitable activities (for those with revenue under $1,000,000). If you start with $100,000, that’s $3,500 per year. After administrative costs (typically 0.75%-1.5% of assets), investment management fees, and other expenses, you’re left with very little for actual grantmaking.

The time commitment: One founder admitted, “I didn’t know entirely what I was getting into when I started. If I hadn’t become so personally involved, I’m not sure I’d be doing today what I’m doing.” Starting a foundation isn’t passive philanthropy. It’s a part-time job at minimum, possibly a full-time one if you’re serious.

Where applications fail: You probably proposed starting a foundation with $250,000, no clear plan for adding capital, vague administrative support, and the assumption that you could run this in your spare time between your day job, coaching Little League, and your standing golf game.

Reason #6: You Got Creative with What Qualifies as “Charitable Activities”

The CRA is very specific about where foundation money can go: registered charities, registered amateur athletic associations, public bodies, and other qualified donees. That’s it. That’s the list.

You cannot:

• Fund your buddy’s “totally going to change the world” startup
• Support international organizations that aren’t on the CRA’s approved list
• Give money directly to individuals in need (even if they really, really need it)
• Fund political campaigns or causes
• Engage in business activities (private foundations are explicitly prohibited from this, unlike other charities)

The mistake: Your application probably included some well-intentioned but technically ineligible activities. Maybe you wanted to help entrepreneurs in developing countries, fund a community organization that isn’t actually registered as a charity, or support a cause that’s more political than philanthropic.

What you should have done: Before writing your application, you should have verified that every single organization and activity you planned to support meets CRA’s qualified donee requirements. This isn’t the time for creative interpretation.

Reason #7: Your Legal Structure Was Half-Baked

You have two options for structuring your foundation: as a trust or as a corporation. Most people choose incorporation because it provides limited liability and is generally easier to manage. But here’s where things went sideways:

You probably:

• Didn’t consult with a lawyer who specializes in charitable law
• Used generic incorporation documents that weren’t properly tailored for a charitable organization
• Forgot that after incorporation, you still need to register with the CRA as a charity
• Didn’t properly establish whether you wanted an inter-vivos trust (operating during your lifetime) or a testamentary trust (established by your will)

The two-step tango: Setting up a private foundation requires two distinct steps. First, create the legal entity (trust or corporation). Second, apply for charitable status with the CRA. You can’t do them simultaneously, and messing up either step means starting over.

Reason #8: Your Application Looked Like You Wrote It During Halftime

The CRA application requires responses to 21 questions. Twenty-one questions that determine whether your foundation receives charitable status and all the tax benefits that come with it.

Looking at rejected applications, it’s clear that some people treated this like a job application for a position they don’t really want. Rushed answers. Vague descriptions. Copy-pasted text from other foundations’ websites. Missing information. Inconsistencies that suggest different people filled out different sections without talking to each other.

What the CRA needs to see:

• Clear articulation of your charitable purposes
• Detailed description of your planned activities
• Demonstration of public benefit
• Proper governance structure
• Realistic budget and sustainability plan
• Understanding of legal and regulatory obligations

What they probably saw in your application:

• Aspirational language without concrete plans
• Budget numbers that don’t add up
• No clear understanding of the disbursement quota
• Governance structure that would make a corporate lawyer nervous
• Activities that might technically violate CRA regulations

How to Actually Get It Right

Alright, enough doom and gloom. Let’s talk about how to avoid rejection and join the successful 5,334 private foundations currently operating in Canada.

1. Start with Soul-Searching, Not Spreadsheets

Before you fill out a single form, ask yourself:

• Why do I really want to do this?
• What specific problem am I trying to solve?
• Am I willing to permanently part with this money?
• Do I have the time to be genuinely involved?
• How do I want my family involved (if at all)?
• What’s my 10-year vision for this foundation?

One co-founder put it perfectly: “I think philanthropy can give meaning to your life. I don’t want to have a lot of regrets when I’m 85, 95. I want to be able to say, you gave back, you made a difference.”

2. Hire Professionals (and Actually Listen to Them)

This is not a DIY project. You need:

• A lawyer specializing in charitable law
• An accountant familiar with foundation taxation
• A financial advisor who understands philanthropic planning
• Possibly a consultant on philanthropic strategy

Yes, this will cost money. But it costs far less than having your application rejected and starting over, or worse, having your foundation’s charitable status revoked later because you didn’t understand the rules.

3. Be Boringly Specific

Your mission statement should be so specific that someone could read it and immediately understand exactly what you’re doing. Compare:

Bad: “Supporting children’s education in Canada”

Good: “Providing academic scholarships and mentorship programs to students from low-income families in Atlantic Canada pursuing post-secondary education in STEM fields, with emphasis on first-generation university students”

Yes, the second one is wordier. It’s also approvable. (See: CRA Guidance CG-019 for more on drafting purposes).

4. Plan for the Long Haul

Most foundations are created to promote sustained giving over time. Your application should demonstrate that you’ve thought about:

• How the foundation will be funded initially and ongoing
• Investment strategy to meet the disbursement quota while maintaining capital
• Governance structure that can outlive the founders
• Succession planning for board members
• How the foundation will evolve over decades

5. Get Your Governance House in Order

Before you submit your application, you should have draft documents for:

• Bylaws or trust deed
• Conflict of interest policy
• Investment policy
• Grantmaking guidelines
• Board member roles and responsibilities
• Compensation policy (most board members serve as volunteers, and in some provinces like Ontario, it’s prohibited to compensate them)

6. Understand the Money Math

Run the numbers before you commit:

• Annual disbursement quota (3.5% of assets)
• Administrative expenses (0.75%-1.5% of assets)
• Investment management fees
• Audit and legal fees
• Other operational costs

If you’re starting with $500,000, your annual disbursement quota is $17,500. After expenses, you might have $10,000-$12,000 for actual grants. Is that enough to achieve your mission? If not, you need more initial capital or a plan to grow the endowment.

7. Only Use Appropriate Assets

The safest assets to donate:

• Cash
• Publicly traded securities (stocks, bonds, mutual funds)
• Life insurance proceeds
• Registered retirement accounts

Assets that require careful planning:

• Real estate
• Private company shares (proceed with extreme caution)
• Art and collectibles

One financial advisor recommends to commit at least $1 million, though this can be funded over several years. Start with what you can comfortably contribute now, and plan for future additions.

8. Study Successful Foundations

Before you apply, research foundations with similar missions. Look at their public filings (available through the CRA website). See how they articulate their purposes, structure their governance, and report their activities.

You don’t need to reinvent the wheel. Learn from those who’ve successfully navigated the process.

The Silver Lining

If your application was rejected, you’re not alone. Many successful foundations had to revise and resubmit their applications. The difference between them and the permanently rejected is that they listened to the feedback, addressed the concerns, and tried again with better preparation.

As one executive director of a second-generation foundation noted: “It’s money for the common good. I think there are a lot of philanthropists who are taking that responsibility seriously.”

The CRA isn’t trying to prevent you from doing good—they’re ensuring that entities claiming charitable status are legitimate, well-governed, and actually serving charitable purposes. Their job is to protect the integrity of the charitable sector and ensure that tax advantages aren’t abused.

Your Next Steps

So your application was rejected. Here’s what to do:

1. Read the rejection letter carefully. The CRA usually explains why they said no. Don’t dismiss their concerns as bureaucratic nonsense—address each one specifically.
2. Consult with professionals who specialize in charitable law and CRA applications. Share the rejection letter with them. Get their honest assessment.
3. Consider alternatives. Maybe a private foundation isn’t the right vehicle for your philanthropic goals right now. Donor-advised funds offer many similar benefits with less administrative burden and lower startup costs.
4. If you’re committed to the foundation route, revise your application thoroughly. Don’t just tweak a few sentences—fundamentally address the CRA’s concerns.
5. Take your time. The application can take 6+ months even when everything goes smoothly. Rushing the resubmission will likely result in another rejection.

The Bottom Line

Starting a private foundation in Canada is one of the most rewarding ways to give back to your community and create a lasting legacy. But it requires genuine commitment, substantial resources, proper planning, and professional guidance.

The CRA rejected your application not because they’re heartless bureaucrats who hate philanthropy (though I’m sure you called them worse things when you got that letter), but because your application didn’t meet the legal requirements for charitable status.

Learn from it. Fix it. Try again.

And next time, maybe start with that soul-searching before you fill out the paperwork. As one third-generation foundation trustee wisely noted: “If you’re going to have a lot of related family members involved, set conflict of interest guidelines. Have some policies or a healthy discussion that is recorded for posterity.”

In other words: do the hard thinking before you do the paperwork. Your future board meetings—and your relationship with the CRA—will thank you for it.

Now go forth and philanthropize. Responsibly.

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