ABSTRACT
Private foundations hold about $1 trillion worth of assets in North America, and that figure continues to grow every year. Even as urgent needs go unmet with the COVID-19 crisis, private foundations continue to spend only a tiny fraction of their wealth on charities, mostly due to the tax laws that permit and encourage this build-up of philanthropic wealth.
This chapter evaluates the efficiency of the tax incentives from which private charitable foundations and their founders may benefit. Even if tax regimes regarding private foundations will soon pass the 100-year mark in many countries, the question of the “treasury efficiency” of the system remains under-explored and under-analysed.
This chapter studies the Canadian tax regime because it is one of the most advantageous of its kind for private foundations and their founders among G7 countries. This chapter focuses on treasury efficiency and concludes that the tax regime as it currently exists in Canada is not efficient, with a disbursement quota of 3.5%, a full tax holiday for the foundation and a tax incentive that may reach up to 57% of the donation. To become treasury efficient within 20 years, it is demonstrated herein that the disbursement quota should be increased to 5.5%.
