As the Holiday Season quickly approaches, The Legacy for Life Planning Committee has come up with a couple of great gift ideas to benefit your family and out community.
Outright Gifts If you gift property that is subject to capital gains taxes, such as shares of stock that have gone up in value, the general rule is that 75 percent of that gain is included in taxable income. However, there was a special provision in the 1997 federal budget that is being applied on a trial basis until 2001 that provides for a reduction in the capital gains rate to 37.5 percent if you donate shares in a public company that is listed on a recognized stock exchange. What does that mean? Let’s say you had invested $10,000 in a stock that was now worth $25,000. You have two options: 1. Sell the stock, pay the tax, pocket the cash 2. Gift the shares to Legacy for Life and Revenue Canada will refund you your original investment cost.
Let’s do the math (assume a 50 % marginal tax rate): Plans 1 vs Plan 2 Market Value: $25,000 $25,000 Cost: $10,000 $10,000 Gain: $15,000 $15,000 Taxable: x75% x 37.5% Income: $11,250 $ 5,625 Tax Rate: 50% 50% Tax Payable: $ 5,625 $2,812.50 Plan 2 will receive a charitable tax receipt for the full $25,000, and assuming the %50 percent marginal tax rate, tax savings of $12,500. The net effect after allowing for payment of the lower capital gains tax of $2,812.50, Revenue Canada will refund you $9,687.50 of your original $10,000 investment, and Legacy For Life will be endowed with $25,000.
Gift of Insurance
If the kids have a fit about you giving away your ‘profits’ you can take out a life insurance policy to replace the value of the gift you made. The kids will smarten up when they realize that your estate will not pay tax on the life insurance proceeds it receives. Another great gift idea for ‘the kids’ – leave them the cottage in your will with the capital gains tax eliminated with a charitable tax credit. Example, capital gain on the cottage projected to be $200,000 at 75 percent equals $150,000, joint-last-to-die insurance policy and donate the proceeds to Legacy For Life through the will. The estate will receive a $150,000 charitable receipt to eliminate the $75,000 final tax due, and Legacy for Life will direct your bequest in accordance with your wishes. These are but a few of the wonderful gift ideas we bring you this season. Because it is important to integrate your charitable donations into your complete personal financial plan, please consult with your professional financial advisor or contact any of the committee members of Legacy For Life Planning and we can certainly direct you to appropriate counsel.