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BDO Dunwoody LLP National Tax Conference Toronto - January 18, 2004 Robert B. Hayhoe Miller Thomson LLP, Toronto 416.595

Planned Giving For High Net Worth Individuals & Owner-Managers. BDO Dunwoody LLP National Tax Conference Toronto - January 18, 2004 Robert B. Hayhoe Miller Thomson LLP, Toronto 416.595.8174 rhayhoe@millerthomson.ca. PLANNED GIVING DEFINED.

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BDO Dunwoody LLP National Tax Conference Toronto - January 18, 2004 Robert B. Hayhoe Miller Thomson LLP, Toronto 416.595

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  1. Planned Giving For High Net Worth Individuals & Owner-Managers BDO Dunwoody LLP National Tax Conference Toronto - January 18, 2004 Robert B. HayhoeMiller Thomson LLP, Toronto 416.595.8174rhayhoe@millerthomson.ca

  2. 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

  3. 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

  4. INDIVIDUAL GIFTS (cont’d) • ITA 118.1(1) “total charitable gifts” • 5-year carry forward for excess gifts • Deemed disposition of property given

  5. 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)

  6. 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)

  7. 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

  8. 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

  9. 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

  10. 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

  11. SPLIT RECEIPTS • ITA 248(30)-(33) • Tax credit / tax deduction available for “eligible amount of a gift” • “eligible amount” = FMV of property donated – “advantage”

  12. 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

  13. SPLIT RECEIPTS (cont’d) • CCRA Technical News No. 26 sets out tax treatment of common fundraising events • Mortgaged Property

  14. 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

  15. 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

  16. 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

  17. 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

  18. 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

  19. LIFE INSURANCE • Gift of policy • Receipt cash surrender value • Gift of premiums • Charity owned policy • premium payments are currently receiptable • beware irrevocable beneficiary designations

  20. 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

  21. 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

  22. 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

  23. 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

  24. RRSP / RRIF GIFTS • ITA 118.1 (5.3) beneficiary designation • Receiptable to deceased annuitant

  25. 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

  26. 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

  27. 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

  28. 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

  29. 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

  30. 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

  31. 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

  32. 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

  33. Planned Giving For High Net Worth Individuals & Owner-Managers BDO Dunwoody LLP National Tax Conference Toronto - January 18, 2004 Robert B. HayhoeMiller Thomson LLP, Toronto 416.595.8174rhayhoe@millerthomson.ca

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