Private foundations sit on billions of dollars while charities struggle

Posted on February 9, 2023 in Inclusion Policy Context

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TheStar.com – Opinion/Contributors
Feb. 9, 2023.   By Linda McQuaig, Contributing Columnist

At our expense we grant huge tax relief to rich families, who channel billions of dollars to private foundations, where the money can sit for decades.

It doesn’t seem like much to ask: just by making a small tax change in the upcoming federal budget, Parliament could encourage more charitable giving, thereby helping a lot of deprived Canadians.

“Canada’s Charities Desperately Need Additional Funding,” says a full-page newspaper ad, citing the rise of food bank use and urging Parliament to introduce the new measure that would provide more tax relief to rich Canadians donating to charities.

It’s a compelling pitch, except for one thing: there’s no reason to believe that the tax change being advocated will do much — or anything at all — to help needy Canadians get charitable services.

Before Parliament creates any new tax breaks for the charitable sector, Canadians should be told a basic fact that may surprise them: there is already $100 billion in charitable funds locked away in private foundations where the money sits idle, year after year, doing nothing to help Canada’s needy.

We don’t need more tax breaks for charitable giving — Canada already has among the world’s most generous charitable tax breaks, and we are overflowing with charitable funds.

It’s just that we can’t get at them.

What’s needed is a major overhaul of Canada’s two-tier charity sector where private foundations controlled by wealthy families sit on mountains of idle cash while thousands of working charities are starved for funds as they struggle to deliver services to Canadians.

Private foundations are certainly a big part of the problem, as more and more of Canada’s charitable donations are given to these massive private holding tanks.

Although donors receive an immediate tax break, private foundations are only required to pay out 5 per cent of their funds each year for actual charitable purposes. The rest of the money accumulates in the foundation, which is allowed to employ family members, whose compensation is paid out of the foundation’s funds.

If the minimum payout were raised to 10 per cent — as many in the voluntary sector advocate — private foundations would be required to disburse, roughly, an extra $5 billion each year.

Still, there would be no guarantee that any of that extra $5 billion would end up actually helping disadvantaged people. That’s because private foundations get to decide where to direct their largesse, and they have shown little interest in helping those at the bottom.

Rather, they tend to direct their disbursed funds towards charitable endeavours that create personal legacies for themselves — their alma maters, hospitals, opera houses and art galleries, where their donations are prominently proclaimed and celebrated.

They also support organizations (with charitable status) that promote their favoured causes, like reducing taxes on the rich.

A study of Canada’s top 20 private foundations revealed some startling facts: fully 34 per cent of their disbursements went to institutions in foreign countries. Meanwhile, only 6 per cent went to Canadian charities focused on poverty reduction.

Just 7 per cent went to organizations “benefiting communities” and this category included the Fraser Institute, a right-wing think tank, which was a major recipient.

Only a minuscule amount of the disbursed funds went to organizations supporting Indigenous people (0.2 per cent), while even less (0.1 per cent) went to racialized communities, according to the study by The Charity Report.

Of course, the rich should be allowed to give their money to whomever they please — except that the money in their foundations has been given special treatment, allowing them to reduce their taxes, thereby obliging the rest of us to pay higher taxes to support Canada’s infrastructure and public programs.

So, at our expense, we’re granting huge tax relief to wealthy families, enabling them to channel billions of dollars into their private foundations where the money can sit for decades, serving no ostensible purpose other than enhancing the family’s prestige and influence.

Now some tax professionals are pushing for a new measure that would allow owners of private companies to be spared paying capital gains taxes when they donate their shares to a charity — most likely a private foundation.

If Parliament is seriously looking for a way to help needy Canadians, it can do better.

https://www.thestar.com/opinion/contributors/2023/02/09/private-foundations-sit-on-billions-of-dollars-while-charities-struggle.html?source=newsletter&utm_content=a06&utm_source=ts_nl&utm_medium=email&utm_email=0C810E7AE4E7C3CEB3816076F6F9881B&utm_campaign=top_166136

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