What seems like a simple question is very important to planned giving. A registered charity can be an organization, corporation or trust registered with the Minister of National Revenue. A registered charity must take one of three forms: a charitable organization, a public foundation, or a private foundation.
The concept of arm's length is a very important concept to understand from the point of view of the charity. For example, if Bob is a Director of a charity, then his brothers and sisters, their children, Bob's children and their children, his wife, her brothers and sisters and their children, and her parents, etc., are all not at arm's length. The same is true if Bob was a partner of a local firm. Then all of his other partners are not at arm's length to the charity because of the relationship to Bob.
At arm's length has serious implications for planned giving especially in the area of non-qualifying securities. This topic will be discussed later in the Section on Outright Gifts.
Where the charity receives its funding is important to its status as a public charity (charitable organization or public foundation) or a private foundation. Consider this simple example: If ABC Charity had $1 million in total funds and a bequest came in for $1.1 million, then ABC would cease to be a charitable organization and would become a private foundation because more than 50% of its total funds came from related sources. Such an occurrence is so rare it is hardly worth mentioning. However, for young charities with little or no funds, both the relatedness of the Directors and sources of funding restrictions are a major concern if the charity does not wish to register as a private foundation.
Certain gifts are excluded from this provision. They are: gifts from any level of government (municipal, provincial, federal), gifts from other charities, or gifts from other not-for-profits. Hence, a charitable organization can start up its own public foundation by transferring funds to the foundation without endangering the status of either charity.
