Health begins with caring. Caring begins with you. Charitable Giving for the Small Business Owner Finding the Best Options

Health begins with caring. Caring begins with you.

Charitable Giving for the Small Business OwnerFinding the Best Options

Philanthropic Landscape


Aging Population

Wealth Transfer

Growth of Charitable Sector

Tax Changes

Philanthropic Landscape


Aging Population

Wealth Transfer

Growth of Charitable Sector

Tax Changes

Charitable Tax Credit


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%


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


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


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


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.


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


Eligible Amount

.


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


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


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


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




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?



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


Gift PlanningWhere to make the current gift?•Personally?•From BBL?•From Holdco?

Is it simply a matter of tax rates?


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


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


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


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%


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


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?


Gift Planning

Summary•Alternatives each have pros and cons•Holdco gifting likely wins out


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


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


Gift PlanningConsiderations•Available Credit likely exceeds tax •New Budget rules may help•Consider gifting more during lifetime•Consider Charitable Remainder Trust


Gift PlanningTax Issues with Joint Spousal Trust•Loss of brackets•75% Inclusion Rate•No Carryback•Timing issues •Voluntary Gift/Nature of Distribution to Charity


Documents

Health begins with caring. Caring begins with you. Charitable Giving for the Small Business Owner Finding the Best Options