Can a registered charity set up a for-profit subsidiary to run a social enterprise?

Yes, and this is the standard structure Canadian charities use to run a genuinely commercial, unrelated business without jeopardizing their charitable registration. Rather than carrying on the unrelated business directly — which registered charities generally cannot do — the charity incorporates a separate for-profit corporation, which carries on the business and pays tax on its own profits like any ordinary business. The charity holds shares in the subsidiary as an investment, and dividends the subsidiary pays up to the charity are treated as investment income, not as the charity's own business activity.

Structured this way, the charity's own restriction on unrelated business activity is respected because the charity itself is not the one operating the business — it is simply an investor. The subsidiary still needs to be a genuinely separate corporation with its own governance, not just a name on paper, and transactions between the charity and its subsidiary need to be on proper commercial terms to avoid the arrangement being treated as a way of running the business through the charity in substance.

Charities considering this structure should get advice early, since getting the corporate and governance separation wrong can undermine the very protection the structure is meant to provide.