Canada Income Tax Capital Gains Stock - DOC by nfw13966

VIEWS: 10 PAGES: 6

Canada Income Tax Capital Gains Stock document sample

More Info
									                               Information for Members
                              Federal Budget Provisions
               Facilitating Donations of Securities to Qualified Charities
The 2006 federal budget increased the capital gains exemption applicable to “qualified securities”1
donated to “qualified charities”.2 As of May 2, 2006, 100 per cent (up from 50 per cent) of the accrued
gain on such donations is exempt from capital gains tax. As well, donors will continue to receive a tax
credit of up to approximately 46 per cent of the value of the qualified securities (the actual tax credit rate
depends on, among other things, the maximum federal/provincial marginal tax rate applicable in the
province of residence of the donor).

The 2007 budget expanded the definition of qualified charity to include “private foundations”.

The 2008 budget extended the capital gains tax exemption for donations of publicly traded securities to
gains on the exchange of unlisted securities that are shares or partnership interests (with some exceptions)
for publicly traded securities, where:
 the unlisted securities included, when they were issued, a condition allowing the holder to exchange
    them for the publicly traded securities
 the publicly traded securities are the only consideration received on the exchange and
 the publicly traded securities are donated to a registered charity or other qualified recipient within
    30 days of the exchange.
Special rules apply where the exchangeable securities are partnership interests.

Advocates of the capital gains tax exemption for charitable donations predicted that this would increase
donations of qualified securities to qualified charities by as much as 50 per cent, from about $200 to $300
million. As securities represent less than five per cent of the over $5 billion given each year to eligible
charities in Canada, the potential may be larger. To facilitate and encourage donations, qualified charities
need the appropriate procedures and accounts in place. Members stand both to help the worthy objectives
of the charities and to win new clients. To help members develop new relationships with eligible
charities, the IIAC has developed materials for members to provide to existing and prospective clients.
       Document A: Information for Qualified Charities About the Tax Exemption
       Document B: Generic Securities Donation Form and Instructions
       Document C: Generic Brochure for Potential Donors


1
    "Qualified securities" include any and all of the following:
    (a) shares, debt obligations or rights listed on a prescribed Canadian stock exchange (which includes Tiers 1
        and 2 of the TSX Venture Exchange, the Montreal Stock Exchange, the Toronto Stock Exchange and the
        Vancouver Stock Exchange)
    (b) shares, debt obligations or rights listed on a prescribed foreign stock exchange (including, in addition to
        many other foreign exchanges, the NASDAQ National Market, the New York Stock Exchange and the
        American Stock Exchange)
    (c) shares of the capital stock of a Canadian mutual fund corporation (as defined for tax purposes)
    (d) units of a Canadian mutual fund trust (as defined for tax purposes)
    (e) interests in a related segregated fund trust (as defined for tax purposes)
    (f) prescribed government debt obligations.
2
    "Qualified charities" include:
    (a) a registered charity that is designated as a "charitable organization", "public foundation" and, as of March
        19, 2007, a “private foundation”
    (b) a registered Canadian amateur athletic association
    (c) certain Canadian corporations that provide low-cost housing to the elderly
    (d) a Canadian municipality
    (e) the United Nations or a UN agency
    (f) prescribed foreign universities
    (g) a foreign charitable organization to which the government of Canada has made a gift in the tax year in
        which the donation is made or the preceding tax year
    (h) the government of Canada or a province.
Capital gains tax exemption for certified ecologically-sensitive land gifts

The 2006 federal budget also provided that certified ecological gifts made to environmental charities
approved by Environment Canada, as well as to any level of government in Canada, would be exempt
from capital gains tax. Investment advisors may want to discuss with clients who could own wilderness
or rural property that may be certified as ecologically sensitive of this capital gains exemption. To claim
a land donation as an ecogift, Environment Canada must approve the recipient and certify the ecological
sensitivity and fair market value of the gift.

Ecogift donations are not subject to:
 the usual 75-per-cent-of-income limits in calculating the income tax credit (for individuals) or
   deduction (for corporations).
 tax on capital gains realized on disposition of the property, as compared to taxation of 50 per cent of
   the capital gain for non-certified gifts or sales of land that must be included in taxable income.

Environment Canada:
 reviews and approves charitable recipients to ensure such organizations are dedicated to protecting
   Canada’s natural heritage.
 provides donors who want certainty about the value of their intended donation a Notice of
   Determination of Fair Market Value before the donation is made.
 issues a Statement of Fair Market Value certifying the gift’s value after the gift is made, which the
   donor submits with his or her income tax return.
 applies tax penalties on charitable and municipal recipients of ecogifts that dispose of title or make a
   change of use without Environment Canada’s prior authorization

For more information, visit http://www.on.ec.gc.ca/wildlife/ecogifts/tax_tools-e.html.
                                          Document A

                                        Did you know?

 Information for Qualified Charities about the Capital Gains Tax Exemption
The 2006 federal budget made giving publicly listed shares, bonds, bills, warrants, futures,
mutual trust funds and other qualifying securities an even better value for charities and their
donors. The budget increased the capital gains exemption applicable to these securities donated
to eligible charities, so that 100 per cent of the accrued gain on the donations is fully exempt
from capital gains tax. The 2008 federal budget extended the capital gains tax exemption
for donations of publicly traded securities to gains on the exchange of unlisted securities that are
shares or partnership interests (with some exceptions) for publicly traded securities under certain
conditions. Now all donations of these qualifying securities to eligible charities are fully exempt
from capital gains tax. As well, they still generate a full tax credit for donors to use to reduce
their income taxes. Combining capital gains tax savings with the charitable tax credit can mean
big savings for donors and more revenue for charities.

Is your organization a qualified charity eligible to benefit from the tax exemption?

To take advantage of the tax exemption, your organization must be a “qualified charity.” A
qualified charity includes:
1. a registered charity that is designated as a "charitable organization", "public foundation" and,
    as of March 19, 2007, a “private foundation”
2. a registered Canadian amateur athletic association
3. certain Canadian corporations that provide low-cost housing to the elderly
4. a Canadian municipality
5. the United Nations or a UN agency
6. prescribed foreign universities
7. a foreign charitable organization to which the government of Canada has made a gift during
    the tax year in which the donation is made or the preceding tax year
8. the government of Canada or a province.

What do qualified charities need to operate a securities donation program?

To accept donations of qualified securities, a qualified charity must:
1. Have or establish an account with a broker to act as an agent for receipt and management of
   the donated securities.
2. Develop a simple donations form with easy-to-follow instructions for donors to use (see the
   following generic Securities Donation Form and Instructions).
3. Designate a Gifts Officer to answer donor questions and manage the donation process.
4. Provide potential donors with information that answers the questions they may ask (see the
   attached Generic Brochure for Potential Donors) and the Donations Form and Instructions.

Typical questions that donors may ask are included in the attached generic information brochure
to help you or your donors.
                                       Document B
                    Generic Securities Donation Form and Instructions
         [Customize this form by inserting the Qualified Charity’s name where indicated,
                         adding their logo and possibly your firm’s log])

                        Securities Donation Form and Instructions
Thank you for donating your securities to [insert name of Qualified Charity]. To make your gift
of securities, please complete the form below or talk to your broker; he or she will confirm which
securities qualify and help you complete the form if you need help. Then:
1. Deliver a copy to your broker
2. Deliver a copy to [name of Qualified Charity] at the address below to enable [name of
   Qualified Charity] to track your gift and send you a tax receipt for your donation.

If you have questions or need help completing this form, please contact our Gift Officer at xxx
xxx-xxxx; e-mail: xxxxxx or refer to the Canada Revenue Agency’s (CRA's) pamphlet P113, Gifts
and Income Tax.

Description of securities:                                       # of shares   estimated $ value




Date of transfer:


Gift to be used for:  Check here for “Where needed most” or specify below [Optional]



Information about you:
Last Name:                                       First Name:
Address:
Contact Telephone:                               E-mail:

Information about your broker:
Broker’s Name: ____________________ Company:
Contact Telephone: _________________ E-mail:
Donor Signature:
I understand that I will receive a tax receipt from [name of Qualified Charity] based on the
closing price of these securities on the date of transfer to [name of Qualified Charity]’s brokerage
account. These securities have been donated to [name of Qualified Charity] without restriction
and can be sold by [name of Qualified Charity] [when received or at any time considered
appropriate].

Please ask your broker to send your gift to [Qualified Charity’s] broker at:
       Broker:       [insert name of Qualifying Charity’s broker name]
       CUID#:        [insert CUID (identification number) of Qualifying Charity’s broker]
       Account #:    [enter Qualifying Charity’s account number]
       Contact:      [enter Qualifying Charity’s broker contact name, telephone and fax
                     number, e-mail address and address]

When you complete your tax return, report the disposition of your securities using the CRA’s
T1170 Form, calculating any capital gain resulting from the disposition. The capital gain will be
exempt from tax. Then claim a donation tax credit in your tax return for the year when the
donation is made.
                  Document C – Generic Brochure for Potential Donors
(Note: Customize this document by inserting the name of the Qualified Charity where indicated
                                    and adding its logo)

        GOOD NEWS ABOUT DONATING SHARES AND OTHER SECURITIES
      BENEFITS FOR [NAME OF QUALIFIED CHARITY] – TAX SAVINGS FOR YOU
In 2006, the federal government made it even more cost-effective to donate to [name of Qualified
Charity]. Donations of qualified securities – essentially publicly traded shares – are fully exempt from
capital gains tax. In 2008, the government extended the capital gains tax exemption to gains on the
exchange of unlisted securities that are shares or partnership interests (with some exceptions) for publicly
traded securities under certain conditions.

This means that when you donate qualified securities to [name of Qualified Charity], you will pay no tax
on accrued capital gains on the securities. Moreover, you will still receive a tax receipt for the full value
of the securities. This will entitle you to claim a donation tax credit in your tax return for the year the
donation is made.

When you donate qualified securities that have increased in value, the after-tax cost to you will be less
than if you sold the qualified securities and donated the proceeds. This benefits you and [name of
Qualified Charity].

How is this different from a cash donation made from the sale of securities?
To benefit from the capital gains exemption, qualified securities must be transferred to the [name of
Qualified Charity]. If the securities are sold and the proceeds are donated, you will not be eligible for the
capital gains tax exemption.

What are the potential tax savings?
Tax savings will vary depending on a number of factors, the most important being the amount that you
paid for the securities and the securities’ current market value, and the tax rate in the your province.
E.g., If the original purchase price of securities that you are proposing to donate is $400 and their
         current value is $1,000, the charity will receive $1,000 and the after-tax cost of the donation for
         you will only be approximately $402.00 (i.e., $1000 minus the sum of (i) a tax credit of
         approximately 46% of $1,000 (i.e., $460), and (ii) a tax savings of approximately 23% of $600
         (i.e., $138) as a result of the capital gains tax exemption). Note: If the original purchase price is
         less than $400, the after-tax cost of the donation will be less than $402. If the original purchase
         price is more than $400, the after-tax cost of the donation will be more than $402.
Your professional advisor can give you detailed information tailored to your own circumstances and
confirm specific tax benefits.

Is the exemption available for gifts made in my will?
Yes, the exemption for donations of qualified securities also applies to gifts made in your will.

How do I make a donation?
Donating securities is simple. Follow the instructions to complete the attached Securities Donation
Instructions and Form and deliver copies of it to [name of Qualified Charity] and your broker. More
information can be obtained by contacting the Gift Officer of [name of Qualified Charity] at xxx xxx-
xxxx; e-mail: xxxxxx. Additional information is also available in the Canada Revenue Agency’s (CRA's)
pamphlet P113, Gifts and Income Tax (http://www.cra-arc.gc.ca/E/pub/tg/p113/README.html).

What securities are eligible for the exemption?
[Note to Translator – the text immediately below appears on the first page]
Qualified securities – securities eligible for the capital gains exemption, include any of the following:
(a) shares, debt obligations or rights listed on a prescribed Canadian stock exchange (which currently
    includes Tiers 1 and 2 of the TSX Venture Exchange, the Montreal Stock Exchange, the Toronto
    Stock Exchange and the Vancouver Stock Exchange)
(b) shares, debt obligations or rights listed on a prescribed foreign stock exchange (including, in addition
    to many other foreign exchanges, the NASDAQ National Market, the New York Stock Exchange and
    the American Stock Exchange)
(c) shares of the capital stock of a Canadian mutual fund corporation (as defined for tax purposes)
(d) units of a Canadian mutual fund trust (as defined for tax purposes)
(e) interests in a related segregated fund trust (as defined for tax purposes)
(f) prescribed government debt obligations.

Note: Except for certain employee stock option transaction, actual securities must be transferred to a
Qualified Charity. If securities are sold and the proceeds are then donated to the Qualified Charity, the
capital gains tax exemption will not apply.

How does the exemption apply to stock option transactions?
The capital gains tax exemption applies to securities acquired upon the exercise of employee stock
options if the securities are given as a gift within 30 days of the exercise date of the employee stock
options. For further information and conditions regarding employee stock option transactions, including
the donation of “cashless exercise” options, please contact the CRA or a tax professional.

What do I need to do when I complete my income tax return?
When you complete your tax return, report the disposition of your securities using the CRA’s T1170
Form, calculating any capital gain resulting from the disposition. The capital gain will be exempt from
tax. Then claim a donation tax credit in your tax return for the year when you make the donation.

Insert Securities Donation Form and Instructions here or include a form loose with the brochure]

								
To top