halifax estate planning council
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Halifax Estate Planning Council. Charitable Giving for the Small Business Owner Finding the Best Options. Health begins with caring. Caring begins with you. Philanthropic Landscape. Aging Population Wealth Transfer Growth of Charitable Sector Tax Changes. Health begins with caring. - PowerPoint PPT PresentationTRANSCRIPT
Health begins with caring. Caring begins with you.
Charitable Giving for the Small Business OwnerFinding the Best Options
Philanthropic Landscape
Health begins with caring. Caring begins with you.
Aging Population
Wealth Transfer
Growth of Charitable Sector
Tax Changes
Philanthropic Landscape
Health begins with caring. Caring begins with you.
Aging Population
Wealth Transfer
Growth of Charitable Sector
Tax Changes
Charitable Tax Credit
Health begins with caring. Caring begins with you.
Cumulative Donations < $200 = Credit at lowest marginal tax rate > $200 = Credit at highest marginal tax rate
Combined rates:Nova Scotia = 50%New Brunswick = 46.84%Prince Edward Island = 45.7%
Health begins with caring. Caring begins with you.
ITA Provisions for Charitable Gifts
Individual and Corporate donors can:Claim up to 75% of net income Carry forward excess up to 5 yrs Limit increased by 25% of gain if capital property
In year of death: Claim up to 100% of net income Carry excess back to previous year
2014 Federal Budget
Health begins with caring. Caring begins with you.
ITA 118.1 (4) ITA 118.1 (5)
Gift in will – deemed made before death Gift in year of death – if credit not claimed, deemed made in year prior to death
Allows tax credit to be claimed on terminal return and
previous year
2014 Federal Budget
Health begins with caring. Caring begins with you.
Jan. 1, 2016
Donations by will deemed made by estate when property transferred
Can allocate tax credit wherever most effective.
Must be made within 36 months of death
Similar rules for RRSP/RRIF/TFSA or insurance
Health begins with caring. Caring begins with you.
Gift of Publicly Listed Securities
Capital Gain Inclusion Rate Now 0% No capital gains tax Tax receipt for FMV of donation
Opportunity for Gift from Holdco Tax free portion of gift to CDA Gift of securities = 100% of gain Balance paid to shareholders tax free
Capital Dividend Account
100% of gain paid tax-free to
shareholders
100% of gain
Life Insurance1. Donor Owned
Death benefit receipted
2. Charity Owned Premiums receipted
3. Insured Annuity (Back to Back) Annuity income pays premiums
4. Wealth replacement Outright donation is replaced in estate.
Health begins with caring. Caring begins with you.
Life InsuranceExisting policy transferred to CharityNow FMV – CRA Technical Interpretation (02/25/08)
Refers to par. 40 & 41 of Income Tax Information Circular 89-3 (business equity valuation)
Receipt now based on CSV, loan and face values, health, conversion privileges, replacement value, etc…• Requires actuarial valuation • Means existing term policy could be receipted• Assumes premiums will continue
Health begins with caring. Caring begins with you.
Eligible Amount
.
Health begins with caring. Caring begins with you.
Gift = voluntary transfer of property without benefit to donor
Any benefit disallows gift
Now Split receipting Advantage allowed up to 80% of FMV
Tax Receipt = FMV less advantageConsider….
Gift of Property(Bargain Sale)
$500,000 (FMV)
Eligible amount of gift = $300,000
Tax Receipt = $300,000
$200,000Sale
Motivations for Giving
Health begins with caring. Caring begins with you.
1. Compassion of those in need 90%
2. I believe in the cause 86%
3. Contribute to community 80%
10. Income tax credit 23%
~ Redbird Communications
What Donors Want
Health begins with caring. Caring begins with you.
Wish advisors were more knowledgeable about philanthropic planning
Feel advisors technically competent but lack tools/comfort for values-based planning
Want to make a difference Report they, not advisors raise issue of
philanthropy~ Philanthropic Initiative Inc. - Boston
QEII Foundation Donor Interviews
Health begins with caring. Caring begins with you.
I do have an accountant and financial advisor, but they haven’t given me a great amount of help with charitable interests.
I think people will trust what their advisor tell them so they are very key when it comes to bequests.
I would be more likely to have considered (a bequest) if an advisor had suggested it to me.
My advisor or my lawyer has never asked me about my charitable interests…I would be more likely to consider a bequest if my advisor suggested it to me.
An advisor has never asked me about my charitable interests.
Why Should I Care?
kHealth begins with caring. Caring begins with you.
Why should I care?“Three Wins”
k Caring begins with you. Health begins with caring.
The Legacy Discussion
Health begins with caring. Caring begins with you.
The Legacy Discussion
Health begins with caring. Caring begins with you.
What past experiences make you the person you
are today? What organizations have been meaningful to you
and your family?
Where do you want to make a significant impact?
The Legacy Discussion
Health begins with caring. Caring begins with you.
First Steps
1. Clarify what you have
2. Gain consciousness of what you want to do with it
3. Implementation
Take your practice…
…to the next level!
Gift Planning
Mr. and Mrs. Beneficent•Making $200,000 gift•Both in high tax brackets•BBL has $300,000 in taxable income•Holdco has $3 million in value with accrued gains•Also gifting the bulk of their estate
Health begins with caring. Caring begins with you.
Gift PlanningWhere to make the current gift?•Personally?•From BBL?•From Holdco?
Is it simply a matter of tax rates?
Health begins with caring. Caring begins with you.
Gift PlanningPersonal Gifting:•Donation Tax Credit•50% Tax Savings in NS•Limited to 75% of Net Income•Either Spouse Can Claim •Can Carryforward Used Credits 5 years
Health begins with caring. Caring begins with you.
Gift PlanningBBL Gifting:•Deduction of Donation from Taxable Income•Limited to 75% of Net Income•Income Taxed at Small Business Rate•NS Rate is 14.5%•Potential to donate Inventory and deduct Cost of Sales
Health begins with caring. Caring begins with you.
Gift PlanningHoldco Gifting:•Deduction of Donation from Taxable Income•Limited to 75% of Net Income•Income Taxed at Investment Income Rates
– 50.67% for interest and taxable capital gains– 33.33% for public company dividends
•Potential to Gift Securities– No capital gains tax– Increase CDA balance by 100% of gain
Health begins with caring. Caring begins with you.
Gift PlanningPersonal Gifting Looks Good...•Recover 50 cents on the dollar•But, where is that dollar coming from?•If bonus required, tax impact is a wash•BBL gets deduction at 14.5%•If dividend required, slightly better result– Flowthrough tax rate on dividend is 48%
Health begins with caring. Caring begins with you.
Gift PlanningBBL Gifting Doesn’t Look So Good...•Recover only 14.5 cents on the dollar•Same result as a personal gift?•Possible marketing/promotion benefit
Health begins with caring. Caring begins with you.
Gift PlanningHoldco Gifting Looks Great!•Recover 50.67 cents on the dollar•No capital gains tax – eliminates a future tax problem•Enhance ability to make tax free distributions•Is Holdco taxable otherwise?
Health begins with caring. Caring begins with you.
Gift Planning
Summary•Alternatives each have pros and cons•Holdco gifting likely wins out
Health begins with caring. Caring begins with you.
Gift PlanningTax on Death•Subject to Spousal Rollover•Last to Die will be taxed on Holdco Gains•Gift by Will•Carryback Available•Budget has new rules for 2016•What is Gifted Property?
– Holdco shares– Or Holdco’s portfolio investments
Health begins with caring. Caring begins with you.
Gift PlanningTax on Death
Capital Gain $3,000,000Taxable Portion 1,500,000
Tax Payable 50% 750,000Credit Available (2,250,000) Note
Excess 1,500,000
Note: 50% of the total of $3,000,000 Holdco value plus $1.5 million proceeds from BBL sale
Health begins with caring. Caring begins with you.
Gift PlanningConsiderations•Available Credit likely exceeds tax •New Budget rules may help•Consider gifting more during lifetime•Consider Charitable Remainder Trust
Health begins with caring. Caring begins with you.
Gift PlanningTax Issues with Joint Spousal Trust•Loss of brackets•75% Inclusion Rate•No Carryback•Timing issues •Voluntary Gift/Nature of Distribution to Charity
Health begins with caring. Caring begins with you.