1. Presented By: DeWayne Osborn CGA, CFP General Manager – Lawton Partners Financial 944-3538 or toll free at 1-888-944-1144 ext 256 Dosborn@lawtonpartners.ca Planned Gifts Taxation Boot Camp

2. Purpose of the presentation? Help non-tax oriented planned gifts officers understand the basics of taxation. Offer a review of planned gifts taxation for anyone interested. Help you clearly and correctly illustrate common planned gift strategies ANSWER YOUR QUESTIONS!!!

3. What do you need to know? Terminology Basic Rules Planned Gifts Taxation Boot Camp

4. What do you need to know?? How to confidently illustrate the gifts your organization uses. Know How and When to hand off a case to others!! Everything you need in one hour!!

5. Planned Gifts Taxation Boot Camp Why do you need know know some tax? Donors Advisors Planned Gifts Officer YOU!! Planned Gifts Officer

6. Planned Gifts Taxation Boot Camp Some key terms to know – cold! Tax Credit vs Deduction Marginal Tax Rate Deemed Tax Payable (Owing) Total Income Taxable Income Net Income FMV, ACB or Cost Net Tax Savings Combined Tax Rates Earned Income Capital Gain\Loss Contribution Room

7. Planned Gifts Taxation Boot Camp Tax Credit vs Deduction Both are good things for tax payers Any tax credit reduces an individual’s tax payable or owing. A deduction reduces taxable income for either companies or individuals. Donations are credits for individuals, deductions for non-individuals (e.g. companies.)

8. Planned Gifts Taxation Boot Camp How to calculate the donation tax credit Total Donation $ ON Prov. Rate % Fed Rate % Combined (%) < 2005.51520.5 >20017.42946.4 Many donors understand the federal credit, but forget the combined!! Actual tax rate is irrelevant. The best results comes from low income earners making large donations. Can carry forward for 5 years from date of gift.

9. Planned Gifts Taxation Boot Camp Quiz Time: What is the tax savings for a $200 cash donation in Ontario assuming no other donations in the year? Answer: $41 ($200 X 20.5%) Question 2: What about a $500 gift? Answer: $41 + $300 X 46% = $179. OR 35.8% Question 3: what about $5,000 donation? Answer: $41 + $2,208 = $2,249.0 OR 45%

10. Planned Gifts Taxation Boot Camp $ $ For Planned Gift illustrations, use a minimum gift of $10,000 and 46% for tax credit.

11. Planned Gifts Taxation Boot Camp Individual Tax Rates for Illustration Purposes Ontario Personal Tax Rates (Prov. and Fed. + surtaxes) < 37,10620% $37,107- 40,97024.15% $40,971- 65,34531.15% $65,346 – 74,21432.98% $74,215 – 76,98635.39% $76,987 – 81,94139.41% $81,942 – 127,02143.41% >$127,02246.41% Marginal Rates Personal Income

12. Planned Gifts Taxation Boot Camp If you need to use a tax rate, use a high one Example, Bob’s marginal tax rate is 40% Why would you post a tax rate: because you have to determine net tax savings. In other words, the gift triggered income (capital gain)

13. Planned Gifts Taxation Boot Camp Quiz Time: Bob’s taxable income from all sources is $75,000. Bob consults for a $5,000 contract (assume no deductions). How much income tax will he pay on the $5,000 contract? Answer: $1,769.5 ($5,000 X 35.39%) What was his total tax payable?

14. Planned Gifts Taxation Boot Camp Answer: IncomeTax rateTax 37,10620.05%7,440 3,86424.15%933 24,37431.15%7,592 2,77235.39%981 11,88439.41%4,683 80,00021,269 Tax rate = 27% (21,269/80,000)

15. Planned Gifts Taxation Boot Camp Corporate Tax Rates for Illustration Purposes <= $500,00015.5% >$500,00028% Above rates assume active business. Holding companies are taxed at higher rates (46.41%) Gifts more likely from Holding Companies – use 46% west, 48% east! $10,000 gift = $4,800 tax saved.

16. Planned Gifts Taxation Boot Camp Other definitions to know Deemed: Not withstanding anything else! E.g. I deemed my son to clean up his room! Deemed disposition at death, yet nothing actually was sold

17. Planned Gifts Taxation Boot Camp Net Tax Savings is the tax savings from the donation less any tax from the gift itself. Donation limit (Contribution Room) is the amount of charitable donations you can claim against net income in any one year. 75% of net income in a given year with 5 year carry forward. 100% in the year of death and the previous year. Do not go back too far, say beyond 2006! Net Income is the amount of income from al sources less RRSP, and other deductions and expenses.

18. Planned Gifts Taxation Boot Camp Quiz Time: Mary’s 2008 net income is $100,000. What is her 2008 contribution room? Answer: $75,000 Question 2: Mary dies in 2008 (no mention of when), her net income in 2007 was $150,000 and her net income in 2008 was $750,000. How much can she donate via her will to wipe out all tax assuming no donations in or before 2007? Answer: $830,000 ($36,000/.46 + $750k) Generally speaking, high tax bracket income earners, donations are a wash!! When Illustrating the year of death, do not make charitable donations in the previous year.

19. Planned Gifts Taxation Boot Camp Types of Income Earned Income (basis for RRSP etc)

20. Earned Income is: Net income from an office or employment Net income from self-employment Employee profit-sharing plan allocations Disability benefits received from the Canada or Quebec Pension Plan Supplementary unemployment benefits – not regular EI benefits Royalties from any work or invention you created Research grants, net of certain related expenses Net rental income from real property Canadian-source business or employment income earned while non-resident Alimony and maintenance payments received Planned Gifts Taxation Boot Camp

21. Types of Income Earned Income (basis for RRSP etc) Dividends (Eligible vs Non-eligible) Investment Income (AKA Passive Income) capital gains Retirement Income (RRIF, RRSP) For simplicity, just use the words “Net Income” when referring to income

22. Planned Gifts Taxation Boot Camp Example: Gift of RRSP, RRIF Generally required to take a minimum amount out each year (fmv RRIF/90-age of annuitant). Taken into income, reflected in Net Income. Minimum withdrawal rates increase from 5.26% age 71 to a flat 20% after age 94. Lump sums other than the minimum subject to withholding tax (10 to 30%). E.g. Take out $100,000, you will get $70,000 cash. No need to donate the actual RRIF payment. Simply calculate the amount to be withdrawn, then gift a similar amount.

23. Planned Gifts Taxation Boot Camp Gift of RRIF Mary, a recent widow, has to withdraw $45,000 from her RRIF. She now has her husband’s RRIF. She does not need the money She can donate listed securities, cash, or any other property now to wipe out the tax from the RRIF. May be possible to appeal to Minister of revenue to have the withholding waived for a lump sum gift to charity.

24. Planned Gifts Taxation Boot Camp Gifts that create income and thus tax Capital property is property that if sold results in a capital gain or loss. Usually acquired for investment purposes or to earn income (e.g. machines). Life insurance contracts Listed personal property (e.g. art, jewelry, antiques, etchings, etc). Important for art auctions Advisors do this all the time!!

25. Planned Gifts Taxation Boot Camp Gifts that create income and thus tax Capital property FMV is a price two willing, independent, and knowledgeable people would pay for a property. POD is proceeds of disposition (what you got for the property). Should = FMV in theory! ACB is the total cost of the property (includes renovations, improvements, additions, not maintenance) POD – ACB = Capital Gain or (Loss) 50% of gain or loss is taxable – except publicly listed securities, mutual funds, etc. For simplicity, avoid capital losses

26. Planned Gifts Taxation Boot Camp Example of gift of capital property Bob donates his cottage he purchased in 1995 for $50,000. The FMV is $100,000. His marginal tax rate is 36%. (note, no mention of income) Assuming no other deductions, Bob must report $25,000 of income from the gift (50% of the capital gain). The gift creates $9,000 in new tax ($25,000 X 36%) Use highest marginal tax rates if capital gain > $250,000 Net tax savings = $37,000 ($100,000 X 46% - $9,000 in new tax).

27. Planned Gifts Taxation Boot Camp Example of gift of capital property Question 2: What if Bob donated $750,000 of land, ACB = $250,000, what is his net income if no other deductions? Answer: $100,000 + $250,000 (50% of $750k-$250k) = $350,000 Question 3: What is her 2008 contribution room? Answer: ($100,000 + $250,000) X 75% = $262,500 + (25% X 250,000) = $325,000.

28. Planned Gifts Taxation Boot Camp Same numbers as cottage example, only use IBM Shares FMV = $100,000, ACB = $50,000 Capital gain is still $50,000 0% is included in income $0.00 in new tax Net Tax Savings is $46,000 ($46,000) Example of gift of Publicly Traded Securities

29. Easy Tax and Other Resources: CGA Personal Tax Planning handbook KPMG Tax Facts 2009-2010 Charities Section on PD Network (under Taxation) http://www.cra-arc.gc.ca http://www.irs.ustreas.gov/ http://www.charitylaw.ca/index.html www.cagp-acpdp.org http://www.givingandvolunteering.ca/ dosborn@lawtonpartners.ca 1-888-944-1144 ext 256 Planned Gifts Taxation Boot Camp

30. Any Questions??? Thank You