Presented by Brenda McEachern, Estate and Tax Planning Consultant - Canada Life for the Estate Planning Council of Abbotsford

1. Achieving More Together
Business Succession Planning
& Legacy Philanthropy

2. Achieving More Together
Whenever money changes hands….

3. Achieving More Together
Business Succession Planning
l Keep the business
– Transfer to next generation during lifetime
– Transfer to next generation on death
l Sell the business
– To employees / management group
– To third party
l Wind up the business

4. Achieving More Together
Legacy Planning
l Keep the business
– Gift during lifetime
– Gift on death
l Sell the business
– Cash gift using sale proceeds
– Gift of shares to private foundation
– Gift of shares to public foundation

5. Achieving More Together
Gift During Lifetime
Opco
Shareholder
Corporate Portfolio

6. Achieving More Together
Gift During Lifetime – Opco shares
l Donor has a Canadian controlled private corporation
engaged in active business in Canada
l They have done an estate freeze and received
preferred shares
l They used their capital gains exemption when the
preferred shares were issued
l $800,000 preferred shares with ACB and FMV = $800K

7. Achieving More Together
Private Company Shares
l Gift private company shares
– No personal cash required
– Donation receipt = FMV
– Tax credit offsets gain on transfer, if any, then
balance offsets salary or other income
– If CGE shares, no capital gain (ACB=FMV)
– s. 38(a.1) zero inclusion rate does not apply to
gift of private company shares

8. Achieving More Together
Private Company Shares
l Company redeems shares over time
– Cash flow to charity
– Company may get RDTOH tax refund

9. Achieving More Together
Private Company Shares
l Benefits
– Donation credit available personally
– Funded with corporate dollars
– Tax savings available immediately
– Tax recovery available as shares redeemed
– Reduces value of Opco for estate tax
purposes

10. Achieving More Together
Private Company Shares
l 60 year old couple
l $500,000 gift of preferred shares
l Utilize the donation receipt over 5 years -
$100,000 per year
l Personal tax refund $43,700 each year

11. Achieving More Together
Insurance Replaces the Asset
l What will $43,700 for 5 years buy?
l $720,000
– Universal Life Limited 10 pay
– 60 male, 60 female, joint last to die coverage,
standard risk, non-smokers
l Charitable Wasting Freeze

12. Achieving More Together
Gift During Lifetime
Opco
Shareholder
Corporate Portfolio

13. Achieving More Together
Gift During Lifetime – from Opco’s portfolio
l Corporation makes gift of publicly traded securities
l Capital gain inclusion rate = 0%
l Full donation receipt
l Donation creates capital dividend account so company
can pay a tax free dividend to shareholder
l Donation receipt offsets taxable income years 1-6
l Donation and dividend reduce corporate value so capital
gain tax at death is lower

14. Achieving More Together
Tax Impact of a Private Corporation Gift
Reduces
Capital
Gain
At Death
Tax savings can potentially recover the entire amount donated
Offsets
Taxable
Income
Tax Free
Distribution
From Capital
Dividend
Account

15. Achieving More Together
Gift on Death
l Transfer to next generation is taxable
– Estate freezes help
– Family trusts help
– Gifts help
– Insurance helps
– All of the above together really really help!!
l Who should make the gift?
l Who has the tax liability?
l Who has the assets?

16. Achieving More Together
Gift on Death – Putting it all Together
l Shareholder has a $1M taxable gain on death
l Shareholder leaves $1M gift in will
l Corporation owns $1M insurance on shareholder’s life
l Corporation receives insurance proceeds and pays a tax
free insurance dividend to the estate
l Estate is now whole – insurance replaced the assets
donated

17. Achieving More Together
Sale of Private Company
l Need
– Offset tax liability
l Ability
– Sale proceeds
l Desire
– Philanthropic intent

18. Achieving More Together
Sale of Private Company
l Traditional Gift Planning
– Make a cash gift after closing, within same taxation
year, to offset a portion of the capital gain
l Creative Gift Planning #1
– Gift a portion of shares prior to closing
l Creative Gift Planning #2
– Gift special preferred shares after closing

19. Achieving More Together
Gift After Sale – Current Rules
l $813,000 Enhanced Capital Gain Exemption
l $1,000,000 ECGE farms and fishers
l s.38(1) 0% inclusion rate for gifts of:
– Publicly traded securites
– Ecological property
– Cultural property

20. Achieving More Together
Gift After Sale – 2015 Federal Budget
l Disposition of real property or private shares to
an arm’s length purchaser
l Exempt gain =
(donated proceeds/total proceeds) x total gain
l Gift of cash proceeds made within 30 days
l Vendor can be individual or corporation
l Donation amount limited only by sale proceeds

21. Achieving More Together
Gift After Sale – 2015 Federal Budget
l Holdco sells Opco for $4 million
l Holdco donates $1 million within 30 days
l ACB negligible
l Exempt gain is $1M {($1M/$4M) x $4M}
l $3 million net gain
l $1.5 million taxable gain
l $1 million donation deduction
l $500,000 Net Taxable gain
l $228,000 Tax payable (45.7% tax rate)

22. Achieving More Together
Gift Prior to Sale
l Gift before sale closes, within 5 years of closing, to public
or private foundation
l Purchaser buys shares from both donor and foundation

23. Achieving More Together
Opco
Shareholder

24. Achieving More Together
Opco
Shareholder Foundation

25. Achieving More Together
Opco
Shareholder
$$$
Foundation
$$$
Purchaser

26. Achieving More Together
Gift Prior to Sale
l Public foundation - receipt available at time of donation
l Private foundation – receipt available at time of sale
l Donation receipt offsets donor’s capital gain
l Eliminates capital gain on foundation’s shareholding
l Foundation now has liquidity

27. Achieving More Together
Gift Prior to Sale
Gift After Gift Prior
Gift 0 4,167,000
Fair Market Value 25,000,000 20,833,000
Adjusted Cost Base 15,000,000 12,400,000
Gain 10,000,000 8,334,000
Taxable Gain 5,000,000 4,167,000
Gift 4,167,000 0
Tax Payable 375,000 0

28. Achieving More Together
Gift After Sale - Preferred Shares
l Corp A and Corp B are “sister” companies
l Corp A has sold assets or shares
l Corp A has a capital gain and wants an offsetting
deduction
l Corp A has full sale proceeds available for
planning

29. Achieving More Together
Corp A
Shareholder
Corp B
$$$

30. Achieving More Together
Gift Preferred Shares
l Corp B creates special preferred shares
– Retractible, redeemable, fixed cumulative dividend
l Corp A buys preferred shares from Corp B
– High ACB
l Corp A donates shares to public foundation
– No capital gain because ACB = FMV

31. Achieving More Together
Corp A
Shareholder
Corp B
$$$

32. Achieving More Together
Corp A
Shareholder
Corp B
$$$
Preferred
shares

33. Achieving More Together
Corp A
Shareholder
Corp B
Foundation
Preferred
shares

34. Achieving More Together
Gift Preferred Shares
l Corp B pays annual dividend to foundation
l Corp B insures shareholder to have funding to
redeem preferred shares on death
l Corp B has full sale proceeds for investing, less
– Annual dividend paid to charity
– Annual insurance premium

35. Achieving More Together
Gift Preferred Shares
l Full (subject to valuation) and immediate receipt
generated by the gift of shares
l All cash remains in the corporate group
l No gain triggered on the donation
l Annual dividend paid recovers RDTOH balances
l Ultimate redemption funded with insurance
rather than investment assets.
l CDA balance available for family

36. Achieving More Together
Conclusion
l Be creative
l Think beyond cash
l Private company shares are worth considering
l Use tax efficiencies to maximize donor intent

37. Achieving More Together
Thank you!