Policy Forum: Half-Siblings or Close Cousins? Contrasting Operating and Grant-Making Foundations Through a Disbursement Policy Lens

Almost all charitable foundations in Canada are subject to a minimum spending rule, requiring them to disburse a set portion of their assets annually. According to 2022 amendments to the Income Tax Act, foundations must spend at higher rates if their assets exceed a new statutory threshold. While the size-based spending policy recognizes the need for sustained support of the charitable sector, it overlooks the diversity of Canada's foundation community. How can we make sense of these spending obligations for foundations that finance their own philanthropic initiatives (operating foundations) compared to those that solely provide grants (grant-making foundations)? This article takes a close look at the distinction between Canada's operating and grant-making foundations, using key measures from the Canada Revenue Agency's foundation data for the years 2005 to 2018. It questions how "related" the two categories of organizations are in the face of identical spending obligations. Additionally, this article clarifies the policy intention of the existing disbursement requirement, considering that Canada's foundation sector is becoming increasingly diverse and that operating foundations are gaining a stronger presence in this sector.