BDO Dunwoody LLP National Tax Conference

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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_at_millerthomson.ca

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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

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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

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INDIVIDUAL GIFTS (contd)

• ITA 118.1(1) total charitable gifts
• 5-year carry forward for excess gifts
• Deemed disposition of property given

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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)

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TESTAMENTARY GIFT TRAPS

• ITA 118.1(5)
• gift must be made by the individuals 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)

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TESTAMENTARY GIFT TRAPS (contd)

• 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

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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

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CORPORATE GIFTS (contd)

• 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

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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

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SPLIT RECEIPTS

• ITA 248(30)-(33)
• Tax credit / tax deduction available for
  eligible amount of a gift
• eligible amount FMV of property donated
  advantage

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SPLIT RECEIPTS (contd)

• advantage is benefit to donor (or non-arms
  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

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SPLIT RECEIPTS (contd)

• CCRA Technical News No. 26 sets out tax treatment
  of common fundraising events
• Mortgaged Property

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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

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NON-CASH GIFTS (contd)

• 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

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NON-CASH GIFTS (contd)

• 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

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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

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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

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LIFE INSURANCE

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

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LIFE INSURANCE (contd)

• 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

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LIFE INSURANCE (contd)

• 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

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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

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LIFE ANNUITIES (contd)

• 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

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RRSP / RRIF GIFTS

• ITA 118.1 (5.3) beneficiary designation
• Receiptable to deceased annuitant

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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

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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

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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

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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 arms length immediately after
  the gift

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NON-QUALIFYING SECURITIES (contd)

• ITA 118.1(19) NQS rules do not apply to excepted
  gift shares donated to public charity where
  donor deals at arms length with the donee
  charity and its directors, officers and trustees

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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

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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

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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

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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_at_millerthomson.ca