12 employee can claim a deduction against the stock option benefit so only 50% of the benefit is taxable up to $250,000 and after that only 33%. If an employee stock option is exercised and marketable securities are donated within 30 days after the option is exercised, and if cer- tain other conditions are met, only 25% of the benefit is taxable. If the shares are traded on a public exchange, then their donation is treated as the donation of other publicly listed shares as described previously. PRIVATE SECURITIES The donation of securities of private corporations is dealt with in one of two ways; either the gifts are “except- ed” or they are not. An excepted gift is a share donated to a charitable organization or public foundation where the donor deals at arm’s length with the charity’s directors/trustees, officers and other like officials. In these circumstances the gift is treated as any other gift of capital in which there is no special tax treatment for the donation (i.e. the donor pays tax on the disposition). In cases where the gift has been donat- ed to a private foundation or to a pub- lic charity to which the donor is relat- ed, the gift is not considered “made” until one of two things happen: either the item donated must cease to be a non-qualifying security (e.g. the cor- poration is no longer controlled by the donor or the corporation becomes publicly listed) or the charity has dis- posed of the security within five years of receiving the donation. The fair market value of the gift is then the lesser of: • the value of the security when trans- ferred to the charity, • and the value of the security when the gift is deemed to have been made. Note that the donor does not have to include any capital gain in their income before the shares are sold by the charity, so that the donor is not paying tax in advance of receiving the receipt. If the charity does not sell the shares within five years, the donor will not receive a receipt and the gain will never be tax- able. RRSPs/RRIFs People may find that they have more than enough money in their RRSPs once they get to a certain age and are willing to make donations in their lifetime to see the fruits of those donations while they are still alive. The RRSP rules do allow for withdrawals from the plan but, upon withdrawal, the institution that holds the account (usually a bank) is required to withhold certain amounts. These amounts on a per withdrawal basis (i.e., not cumulatively for the year) are: • 10% (5% in Québec) on withdrawals up to $5,000; • 20% (10% in Québec) on withdrawals between $5,001 and $15,000; and, • 30% (15% in Québec) on withdrawals of more than $15,000. The amounts withdrawn are claimed as income to the owner of the RRSP in the year withdrawn and tax is paid at the owner’s marginal rate. Thus, if a poten- tial donor wants to donate $50,000 and has that money in his or her RRSP, a withdrawal of $50,000 would give the potential donor outside of Québec $35,000 cash to donate. The remaining 30 per cent ($15,000 in this case) would be remitted to the government by the bank and credited as income tax already paid when the donor files his or her tax return for that year. A donor may also wish to donate his or her RRSP or RRIF upon death. There are two ways to do this. One way is to list the charity as a beneficiary of the RRSP in the donor’s Will. The other way is to make use of the direct beneficiary elec- tion, which is signed when the RRSP is first opened (and can usually be changed at will). If the first method is used, the RRSP will fall into the donor’s general estate before passing on to the charity. Under the second method, the RRSP will automatically become the property of the charity without going through the estate. The advantage of using the RRSP direct beneficiary election is that the RRSP will not pass through probate. When a Will is probated, the various provinces charge different amounts of tax on the total value of assets passed on in the Will. Thus, the amount of money in an RRSP is added to the other assets and a portion is taken by the government before any of the assets are passed on. INSURANCE Sometimes an insurance policy becomes superfluous. If the policy is unnecessary, the donor may decide to donate it to charity. From a tax perspective, the donor of a life insurance policy will have an income inclusion of the proceeds of disposition less the adjusted cost base (ACB). An income inclusion is distinct from a capi- tal gain and effectively means that a donation of an insurance policy has no net tax benefit for the donor. The ACB calculation is rather complicated and considers the premiums paid, dividends received, and – for policies purchased after 1982 – the Net Cost of Pure Insurance (NCPI). Despite the ominous name, the NCPI is not overly difficult to calculate, although it will likely require professional advice from either an expe- rienced advisor or the insurance compa- ny involved. In a February 2008 bulletin— and later in another setting — the Canada Revenue Agency (CRA) laid down cer- tain guidelines for determining the Fair Market Value of a disposed-of policy. In these pronouncements, the calculation of the proceeds of disposition (POD) of an insurance policy considers: • the policy’s loan value; • the face value of the policy; • the state of health of the insured and their life expectancy; • conversion privileges; • other policy terms, such as term rid- ers, double indemnity provisions; and, • replacement value. The idea here is that the value of a pol- icy may or may not be accurately reflected by any cash surrender value held by the policy. When valuing the policy for both tax and receipting pur- poses, the donor and the charity must take into account the fact that the donor may be very ill and the policy may mature shortly after donation. A policy that would otherwise be impos- sible to receipt would become valuable to the donor. To do this, the advice of
