Private foundations are a great way to support a particular cause, bring your family together, and save some tax while you’re at it

Here in Atlantic Canada we have a great corporate culture of community support. But many business owners aren’t aware of an option that exists for those with surplus resources: private foundations. They have great advantages such as flexibility, control, privacy, and independence, along with the satisfaction of supporting the community and the obvious tax benefits—attributes that most entrepreneurs appreciate.

A private foundation is a charity that falls under a charitable foundation for CRA purposes. It’s one that has received more than half its funding from a non-arm’s length source or has a board that is not arm’s length. Most family foundations fall under this category. Of the roughly 2,300 foundations in Canada, almost 84% are family foundations with about 3.5% of those based in Atlantic Canada, according to Philanthropic Foundations Canada.

We’re seeing a trend among the entrepreneurs we consult with to assist them in setting the framework for a foundation or actually helping to put it in place. Most do so because of a desire to create a legacy with surplus wealth. There are some things you should consider when doing so.

Document your goals. Once you do, they are more likely to be a lightning rod for change and allow you to focus on each of them, and understand how one goal may interact with another.

Understand what your surplus is. A capacity analysis can help you determine how much extra you currently have or will likely have. This allows you to get a clear understanding of what you require today and in the future to maintain or grow your standard of living and achieve all your goals.

Once you know the surplus, and what it is likely to grow to, you can make a choice—is a foundation something for today or down the road? A private foundation can be set up as part of your estate plan, to be funded either on your death or at some other key juncture. Or it can be set up today—perhaps in conjunction with the sale of your business, when you have both the means to fund it and the desire to save on a potential tax bill. For instance, a charitable donation to a private foundation will save you $48,250 in Nova Scotia on a $100,000 donation.

Entrepreneurs have generally been characterized as risk takers—those that have a vision and a dream and go after it—and having control and the flexibility to change course or change their mind is a key trait. Because you get to choose the board, the original funding, the direction, and the mandate of the foundation, you get to call a lot of the shots. Having said that, you need to follow the rules set out by CRA with respect to Charitable Organizations to ensure you get all the tax benefits initially and so the foundation can operate with a charitable status along the way to achieve its intended objectives.

Lastly, successful people in Atlantic Canada are generally much more private about their wealth and their activities, and privacy is often a core value. If you consider funding a private foundation, you can do so quietly. If you choose to fund a foundation on your death, there are options available that you can employ to ensure your gift remains private. But these are areas that your advisors can assist with if you choose to consider this as part of your planning strategies.

Private and/or family foundations can be a great way to support a particular cause, bring your family together to create lasting leadership in the community, and save tax along the way. They may be a great outlet for your future plans as well.

Peter Boyd, CA CFP is a wealth management consultant with Owens MacFadyen Group, an independent wealth management firm serving the needs of entrepreneurs and professionals. He has almost 20 years of experience helping entrepreneurs and focuses his practice in the areas of succession planning, tax planning, investment management, and estate planning.