Entrepreneurs create much wealth in Canada with their businesses
and real estate holdings. These dedicated owners are often also
very committed to charitable giving. They seek to pass on
their community, not diminished, but better than it was passed on
However, it is challenging to make gifts from their
wealth. Company shares and real estate holdings are often
Yet, with careful planning, significant gifts can be made
now. There are also new gifting opportunities coming in
Consider an example of Daniel and Helen – two successful
siblings. Daniel grew a family business; and Helen assembled
a real estate portfolio. Daniel wishes to create an
ongoing endowment to fight poverty issues. Helen wishes to
help a youth community centre.
Daniel's current gift
Daniel has a challenge. Complex rules apply to gifts of
private company shares.
The default tax rule prohibits a charity from issuing Daniel a
tax receipt (to reduce his taxes) unless the charity sells the
gifted shares within five years of the donation.
Fortunately, there is an "exempted gift" rule.
The five year sale period is avoided if the shares are gifted to an
"arm's length" public charity such as Daniel's
The foundation can hold the gift in perpetuity and produce an
annual income. Daniel can advise about distribution of the
income to his preferred charities.
However, without further planning, the foundation would have
valuable shares but no easy way to produce an income for the annual
Instead of giving his current shares, Daniel could reorganize to
create and donate new preferred shares with a fixed value.
These shares could then be repurchased from the foundation by the
company in yearly installments to create a cash flow.
Each repurchase would usually be taxed as a dividend, but the
foundation can receive it tax free. Each repurchase may also
allow Daniel's company to claim a refund of some pre-paid taxes
(amounts that may have been collected from past company earnings).
The refund may be up to 1/3rd of the repurchase amount.
This gift plan is just one of the options available to
Daniel. In the right circumstances, it reduces taxes now and
creates an ongoing annual refund. It gives the foundation a
secure gift and cash flow for the annual income. Most
importantly, Daniel will fulfill his wish to make his community
Daniel's future gift
In the future, Daniel's long-term plan may be to pass his
business on to the next generation, but it might also be
sold. After 2017, in a sale situation, new tax rules may give
Daniel extra savings by eliminating the tax on the capital gain in
his shares – somewhat like the current rules for gifts of
publicly-listed shares. However, the proposed rules are more
restricted. Still, if Daniel thinks he might sell and also
continue his philanthropy, then it is important that he be aware of
this option now – as he prepares his company for that
Helen's current gift
Helen has learned that the youth centre is searching for a new
permanent location. One of the properties that Helen has held
in her portfolio for many years is well-suited to their needs.
However, Helen cannot afford yet to gift the full value of the
Helen can arrange a "bargain sale." The youth
centre society will pay up to 80% of the appraised value.
Helen will receive a tax receipt for the difference between the
amount paid and the appraised value. The sale proceeds and the tax
savings from the receipt will more than offset any taxes triggered
by the sale.
Helen's future gift
The new rules in 2017 may also benefit Helen. The capital
gains taxes that would be triggered by a sale of real estate may be
reduced to the extent that Helen gifts proceeds of the sale to a
charity within 30 days of the sale. Again, the proposed rules
have complexities, but Helen may want to keep them in mind for
Entrepreneurs are a driving force in our community. With
careful planning, they can share their success and pass along our
community even greater than it was passed on to us.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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On March 31, 2014, BC's new Wills, Estates and Succession Act1 ("WESA") will come into force. WESA introduces new protections for beneficiaries of estates that are in danger of being disputed or deemed ineffective by a court.
It is not uncommon for parents to provide monetary gifts to their adult children. Parents may wish to help their child with a down payment on a property, or help pay out their child's existing mortgage.
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