Transcript No Slide Title

Planned Giving For High Net
Worth Individuals & OwnerManagers
BDO Dunwoody LLP National Tax Conference
Toronto - January 18, 2004
Robert B. Hayhoe
Miller Thomson LLP, Toronto
416.595.8174
[email protected]
PLANNED GIVING DEFINED
• “The process of designing charitable gifts so
that the donor realizes philanthropic
objectives while maximizing tax and other
financial benefits”, Minton & Somers
• Deferred gifts
• Outright gifts
• Inter Vivos gifts
• Testamentary gifts
INDIVIDUAL GIFTS
• ITA 118.1
– 16% federal tax credit (approx 22% total
tax credit) for first $200 per year
– 29% federal tax credit (approx 40-50%
total tax credit) for donations over $200 per
year
• ITA 118.1(1) “total gifts”
– Up to 75% of annual income
INDIVIDUAL GIFTS (cont’d)
• ITA 118.1(1) “total charitable gifts”
– 5-year carry forward for excess gifts
• Deemed disposition of property given
TESTAMENTARY GIFTS
• ITA 118.1(4)
– gift made by will deemed to have been made
immediately before death
• Same tax credits applicable as inter vivos
gifts
• ITA 118.1(1) “total gifts”
– gifts up to 100% of income in year of death
– 1-year carry back for excess gifts (also up to 100%
income)
TESTAMENTARY GIFT TRAPS
• ITA 118.1(5)
– gift must be made “by the individual’s will”
• CCRA used to take the position that this
required ascertainable amounts to
ascertained charities
– otherwise the gift was a gift from the
estate (which usually does not have
income to make a tax credit useful)
TESTAMENTARY GIFT TRAPS
(cont’d)
• technical interpretations now accept that
a gift of a specific or ascertainable
amount to charities to be determined by
the executors is a gift by will
CCRA 2001-0090205
• Always safest to list beneficiary charities
CORPORATE GIFTS
• ITA 110.1(1) “charitable gifts”
– tax deduction for gifts
• up to 75% of income
• 5 year carry forward of excess gifts
• Deemed disposition of property given
CORPORATE GIFTS (cont’d)
• Publicity expense deduction
– Olympia Floor & Wall Tile (Quebec) Ltd. v.
M.N.R., 70 D.T.C. 6085 (Ex. Ct.)
– Bucholzer v. The Queen, 2003 T.C.C. 573:
need real business purpose
GIFT DEFINED
• “A voluntary transfer of property from
one person to another gratuitously and
not as a result of a contractual
obligation without anticipation or
expectation of material benefit”,
Woolner v. The Queen, (F.C.A.)
• “Detached & disinterested generosity”
– public benefit, not private benevolence
SPLIT RECEIPTS
• ITA 248(30)-(33)
– Tax credit / tax deduction available for
“eligible amount of a gift”
• “eligible amount” = FMV of property
donated – “advantage”
SPLIT RECEIPTS (cont’d)
• “advantage” is benefit to donor (or non-arm’s
length person) resulting from the gift
– very broad definition
» third party advantage
» no timing requirement
– limited recourse debt
– advantage cannot exceed 80% of FMV
unless CCRA validates intent to give
SPLIT RECEIPTS (cont’d)
• CCRA Technical News No. 26 sets out
tax treatment of common fundraising
events
• Mortgaged Property
NON-CASH GIFTS
• Tax credit/deduction available for FMV
– qualified appraisers (see CCRA Pamphlet
P113 for details)
• Personal Use Property
– no taxable capital gain for disposition of
personal property worth less than $1,000
– ITA 46(3) set rules
– ITA 46(5) exception for property acquired
for purpose of donation
NON-CASH GIFTS (cont’d)
• December 5/03 amendments
• ITA 248(35): FMV for credit/deduction
purposes is limited to cost/ACB of
donated goods unless:
– Property acquired more than three years
ago, and
– No intention to donate at time of acquisition
NON-CASH GIFTS (cont’d)
– exceptions for gifts of inventory, publicly traded
securities, certified cultural property, ecological
gifts or Canadian real property
– exception for gifts at death
– ITA 248(37) anti-avoidance rule
• series of transactions designed to increase
248(35) deemed FMV results in lowest cost
ever to acquire the property
– could apply even if donor not part of series
DANGERS OF DECEMBER 5
AMENDMENTS
• No exception for replacement property
• Freeze shares replace common shares
– ITA 248(35) applies for three years
– ITA 248(35) may always apply if eventual
donation was contemplated at freeze time
• Substantial opposition to these rules –
may be amendments
APPRECIATED SECURITIES
• ITA 38(a.1) and (a.2)
– Gift of a share or debt obligation or right listed on
a prescribed stock exchange, a mutual fund or
segregated fund unit or a prescribed debt
obligation (federal or provincial debt) to charitable
organization or public foundation
• full tax credit or tax deduction
• only half of capital gain is taxed
– See Registered Charities Newsletter No. 12 for
discussion of valuation of donated securities
LIFE INSURANCE
• Gift of policy
– Receipt cash surrender value
• Gift of premiums
– Charity owned policy
• premium payments are currently
receiptable
• beware irrevocable beneficiary
designations
LIFE INSURANCE (cont’d)
• ITA 118.1 (5.1) and (5.2) beneficiary
designation
– Estate of deceased receives tax
credit for eventual donation (eligible
for carryback into year of death)
• Disbursement quota issues
LIFE INSURANCE (cont’d)
• Split Dollar Insurance
– pre December 2002: donor benefit so no
gift
– CCRA now appears to accept split dollar
policies (Document No 2003-000411)
• no CCRA guidance on premium split
valuation
LIFE ANNUITIES
• Current donation to charitable
organization with promise to provide an
income stream to donor
– Self-insured, reinsured or facilitated
– Partial donation receipt
– CCRA mortality tables
• Licensing / corporate authority issues
LIFE ANNUITIES (cont’d)
• Technical News 26
– eligible amount is difference between annuity price
and price of commercial annuity
– capital/income calculation done in ordinary way
• Previous position relied on annuity table and
resulted in a lower donation receipt but a
higher tax-free payment – generally more
advantageous to income poor / capital rich
retirees
RRSP / RRIF GIFTS
• ITA 118.1 (5.3) beneficiary designation
– Receiptable to deceased annuitant
CHARITABLE REMAINDER
TRUSTS
• US tax advantaged gift technique
• Declaration of trust in favour of charity as
remainder beneficiary but retaining income
stream
– Donation receipt for actuarial value of remainder
– Deemed disposition of whole asset
• Alter ego and joint spousal trusts
• CAGP proposal
ESTABLISHING A PRIVATE
FOUNDATION
• ITA 149.1 trust or corporation with
exclusively charitable purposes
registered with CCRA
• Advantages
– control
• Disadvantages
– less beneficial tax treatment
– administrative headaches
DONOR ADVISED FUNDS
• Public foundations / charitable
organizations (often community
foundations)
– permit donors to establish a fund and
“advise” on distribution from fund
– less control than private foundations, but
no administrative responsibility
NON-QUALIFYING SECURITIES
• ITA 118.1(13) Non-Qualifying Securities
– gift of NQS deemed not to be made unless in 60
months:
• shares cease to be NQS, or
• donee disposes of NQS
• ITA 118.1(18) NQS is non-listed share or
obligation of corporation with which the donor
does not deal at arm’s length immediately
after the gift
NON-QUALIFYING SECURITIES
(cont’d)
• ITA 118.1(19) NQS rules do not apply to
“excepted gift” – shares donated to
public charity where donor deals at
arm’s length with the donee charity and
its directors, officers and trustees
LOANBACKS
• ITA 118.1(16)
– individual gift to a charity followed by or
preceded by a loan to individual in next or
past 60 months reduced by then FMV of
loan amount
• ITA 189
– private foundation owed money by
taxpayer is liable for a tax equal to
prescribed rate less interest actually paid
CIVIL PENALTIES
• ITA 163.2 penalties for providing grossly
negligent tax advice
• Apply to professional advisors who
provide gift planning advice
• May also apply to charities or their
officers who provide gift planning advice
• CCRA specifically plans to apply
penalties to donation shelters
TAX SHELTER RULES
• Post 2003 budget ITA 237.1: any
representation that a gift can be
profitable makes the gift a tax shelter
– Tax shelter ID number requirement
• no ID – no donation credit/deduction
– No promoter required
– Inadvertent tax shelters
• penalties
Planned Giving For High Net
Worth Individuals & OwnerManagers
BDO Dunwoody LLP National Tax Conference
Toronto - January 18, 2004
Robert B. Hayhoe
Miller Thomson LLP, Toronto
416.595.8174
[email protected]