Tax professionals generally feel a wealth tax (on assets) is inefficient, but it may become a political necessity for the Canadian government. Considering even the remote potential for a Canadian wealth tax, now’s a good time to review your family enterprise purpose and values around charitable giving. If charitable support has been a lower priority topic for a while, now might be the time to change that.
The NDP’s platform for the 2019 federal election included a wealth tax. In November 2020 the NDP leader, Jagmeet Singh, brought this proposal back to the public eye with a call to the governing Liberals to implement the tax to pay for, at least some, of the federal government’s COVID-19 costs. Tax professionals generally find it hard to see the merit of implementing a wealth tax, simply because the amount raised can be heavily eroded by the cost to administer, audit and collect the tax. But you never know when the government might find it politically expedient to introduce a tax of this sort.
Regardless of whether a wealth tax comes along, there’s no better time to consider your approach to philanthropy. Many wealthy families have good intentions to give generously but put a low priority on getting organized to do so. Now more than ever, Canada’s charitable sector’s needs are great, so any contributions will certainly make a difference and may reward you in the future with some wealth tax efficiency.
Our approach here at PwC Canada is to start with identifying and validating your family’s purpose and values. This is the foundation of any dialogue with families that have assets to deploy, and we use it to narrow down the (almost endless) areas of need. Each family enterprise will decide on the family members to be at the table when choosing, refreshing or validating their values. Once this is decided, it’s critical that all the voices at the table are heard, considered and respected, so that all members are properly engaged in the process and can support the outcome.
The next step is to embed these values in a philanthropy policy. Important decisions to make include:
What percentage of your assets will be allocated to philanthropy?
Will you focus on making a big difference in one or a few areas, or will you contribute more broadly?
How much direction do you want to give about how your contribution is used?
And finally, put the philanthropy policy into action with a philanthropy structure that’s also aligned with your purpose and values. You may consider developing a standalone family foundation, working with a community foundation or simply setting aside and restricting funds for charitable use. Setting up sound governance of the philanthropy structure can create a wonderful opportunity for family members to actively engage in the good your assets are doing.
Now, about putting those assets to good work...