Halifax Estate Planning Council

1. Halifax Estate Planning Council Charitable Giving for the Small Business OwnerFinding the Best Options Health begins with caring. Caring begins with you.

2. Philanthropic Landscape • Aging Population • Wealth Transfer • Growth of Charitable Sector • Tax Changes Health begins with caring. Caring begins with you.

4. Philanthropic Landscape • Aging Population • Wealth Transfer • Growth of Charitable Sector • Tax Changes Health begins with caring. Caring begins with you.

5. Charitable Tax Credit Cumulative Donations < $200 = Credit at lowest marginal tax rate > $200 = Credit at highestmarginal tax rate Combinedrates: Nova Scotia = 50% New Brunswick = 46.84% Prince Edward Island = 45.7% Health begins with caring. Caring begins with you.

6. 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 Health begins with caring. Caring begins with you.

7. 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 Health begins with caring. Caring begins with you.

8. 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 Health begins with caring. Caring begins with you.

9. 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 Health begins with caring. Caring begins with you.

10. Capital Dividend Account 100% of gain 100% of gain paid tax-free to shareholders

11. Life Insurance • Donor Owned • Death benefit receipted • Charity Owned • Premiums receipted • Insured Annuity (Back to Back) • Annuity income pays premiums • Wealth replacement • Outright donation is replaced in estate. Health begins with caring. Caring begins with you.

12. Life Insurance Existing policy transferred to Charity • Now 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.

13. 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 advantage Consider…. . Health begins with caring. Caring begins with you.

14. Gift of Property(Bargain Sale) $500,000 (FMV) Sale $200,000 Eligible amount of gift = $300,000 Tax Receipt = $300,000

15. Motivations for Giving Compassion of those in need 90% I believe in the cause 86% Contribute to community 80% Income tax credit 23% ~Redbird Communications Health begins with caring. Caring begins with you.

16. 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 Health begins with caring. Caring begins with you.

17. 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. Health begins with caring. Caring begins with you.

18. Why Should I Care? Health begins with caring. Caring begins with you. k

19. Why should I care?“Three Wins” Health begins with caring. Caring begins with you. k

21. The Legacy Discussion Creating a Moral Biography • Personal capacity - intellectual, creative, financial • Moral compass – purposes, goals, aspirations Using Wealth to Achieve Higher Purposes • What are they? • Use for positive effect • Impart wisdom to children • Paul Schervish - Boston College Health begins with caring. Caring begins with you.

22. 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? Health begins with caring. Caring begins with you.

23. The Legacy Discussion First Steps Clarify what you have Gain consciousness of what you want to do with it Implementation Health begins with caring. Caring begins with you.

24. Take your practice… …to the next level!

25. 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.

26. Gift Planning Where 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.

27. Gift Planning Personal 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.

28. Gift Planning BBL 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.

29. Gift Planning Holdco 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.

30. Gift Planning Personal 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.

31. Gift Planning BBL 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.

32. Gift Planning Holdco 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.

33. Gift Planning Summary • Alternatives each have pros and cons • Holdco gifting likely wins out Health begins with caring. Caring begins with you.

34. Gift Planning Tax 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.

35. Gift Planning Tax on Death Capital Gain $3,000,000 Taxable Portion 1,500,000 Tax Payable 50% 750,000 Credit 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.

36. Gift Planning Considerations • 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.

37. Gift Planning Tax 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.