Equities for Charities

1
Equities for Charities

• National Philanthropy Day

2
Capital Gains

• Generally, any increase in the value of a capital
  asset triggers a tax liability at time of
  disposition.
• The capital gain is determined by subtracting the
  adjusted cost base from the fair market value
  after allowing for any outlays and expenses.
• Only 50 of the gain is included in income.

3
Charities and Government

• In 1997 the federal government reduced the
  inclusion rate from 50 to 25 for donations of
  listed securities.
• This measure contributed to an almost three-fold
  growth in donations by 2004.
• The 2006 budget eliminated the capital gains tax
  on these gifts.

4
Tax Relief

• Charitable donations are subject to step-rated
  tax relief.
• The federal government provides a tax credit of
  15 on the first 200 of donations and 29 on the
  balance.
• The provincial credit is 10.12 and 17.95.

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What does it mean?

• Your client can make a donation of listed
  securities and enjoy tax savings of approximately
  25 on the first 200 and 47 on the balance.
• A 10,000 gift generates federal tax savings of
  2,872 and provincial savings of 1,779.

6
Total Savings?

• A 10,000 gift can save a taxpayer 4,651 in tax
  in 2007.
• And yet, your client pays with discounted dollars
  since he has not had to realize the capital gains
  tax on the growth!

7
Buried Treasure

• For some people, they might be holding
  liabilities that can be turned into assets.
• Consider Manufacturers Life
• In 1999 they de-mutualized.
• Each policyholder received 186 shares of MFC
  valued at 18.
• These shares now trade over 40.

8
Ramifications?

• These shares are subject to the full weight of
  the capital gains tax.
• If provided as a charitable donation, the full
  weight of the value becomes a tax credit.

9
Finally

• On the 2006 tax return, many people were
  surprised to find additional tax liabilities as a
  result of the Aliant corporate conversion to the
  Bell Aliant income trust.
• In the meantime, those pre-disposed to gifting
  were able to make arrangements for the easy
  transfer of their shares.

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Can you help your clients to help others?