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Donating capital property to charity Making philanthropy tax-efficient. A capital property donation may occur in a current year or at death, and in qualified circumstances a donor may be entitled to tax relief presently while retaining personal use of the property for life. - PowerPoint PPT Presentation
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A capital property donation may occur in a current year or at death, and in qualified circumstances a donor may be entitled to tax relief presently while retaining personal use of the property for life.
This presentation looks at the considerations that inform a donor as to the optimal manner by which to structure a donation, and how life insurance can make that donation more effective.
This material is presented for informational purposes only, and is not a legal, tax or investment opinion to be relied upon either by an advisor or by a client.
Interested persons should seek retained independent professional advice before acting or foregoing action in relation to any of the matters mentioned herein.
Donating capital property to charityMaking philanthropy tax-efficient
Sales, Tax, Estate Planning, Underwriting & Product Team
COST• No splits or fees• No cost to Client• No cost to Advisor• No cost to MGA
CRITERIA• No arbitrary hurdles• Generally …
–Larger cases–Business cases–Estate/tax issues–Key clients
ACTIVITY•Resource contact•Seminars•Case consultation
COORDINATION• Account Manager
–Front-line support–Assist intermediate–Channeling advanced
PEOPLE• Lawyers• Accountants, & • Accredited financial professionals
MISSION• Boost value touches • Broaden options• Case placement assistance• Optimize case values
• Charitable tax credit
• Gifts of capital property
• Residual & remainder interests
• Timing & control
• Role of life insurance
Donating capital property to charityMaking philanthropy tax-efficient
Donating capital property to charityCharitable tax credit
• Two-tier tax credit structure– Credit on donations up to $200 is
at the lowest federal tax rate– Credit on donations over $200 is at
the lowest federal tax rate – Corresponding provincial credits
• Offset up to 75% of net income• Up to five years carryforward for
unused credit • In year of death
– Offset up to 100% of net income– Carryback offset up to 100% of net
income in year prior to death
Donating capital property to charityGifts of capital property
• At any disposition, capital gains & recaptured depreciation are taxed
– Gift is a deemed disposition
• When gift is made to a charity
– May elect disposition value from ACB to FMV for both capital gain tax and charitable credit
• Capital gains inclusion rate
– 25% rather than usual 50%
– Prescribed securities& funds, and ecologically sensitive lands
• No tax on principal residence
Donating capital property to charityResidual & remainder interests
• Current tax credit– Continue to use property for life
• Two common forms used– Residual interest in real property
– Charitable remainder trust
• Qualifying as a gift– Identification, size of interests,
vesting, & all conditions satisfied
• Valuing the interest - Actuary– FMV, life expectancy, interest
rates & case-specific factors
• Using a testamentary trust
Donating capital property to charityTiming & control
Lifetime donation Donation at deathRemainder/residual
Value of donation FMV FMV Portion of FMVEvidence Evidence Actuary
Charitable tax credit Current At death Current100-400% 100-200% 100-400%
Control To Charity Donor for life Donor for lifeImmediately & Revocable to Irrevocable to irrevocably charity at death charity at death
Ongoing costs Charity Donor for life Shared
Donating capital property to charityRole of life insurance
• Value recovery for residual beneficiaries – Replenish the estate
• Maintenance for surviving spouse – Support surviving spouse for life
• Leverage the charitable gift – In effect, donate twice