The generosity of Canadians is evidenced by the $8.3 billion of charitable donations made by over five million people in 2012. The reasons are many. Some individuals have a strong desire to share their wealth during their lifetime. Others are reliant on their wealth to fund their retirement, but value the opportunity to share when they die. Some individuals want to ensure that their charitable goals can be continued long after they are gone. Whatever the reason, charitable gifts and bequests are very common.
The federal government and all of the provinces offer a non-refundable tax credit for charitable gifts. Under the current rules, a gift made through a will or through naming a charitable beneficiary of an insurance policy is deemed to have been made by the deceased the moment before death. This means that such gifts are eligible for a tax credit that can be claimed on the deceased’s terminal tax return up to the amount of net income. The amount of the donation not claimed on the terminal return can be carried back and claimed on the prior year’s tax return.
Under current rules, the tax on income arising on death (due, for example, to the triggering of capital gains and the inclusion of remaining RRSP/RRIF amounts) can be offset by the credit available on charitable donations. In addition, the opportunity to carry back unusable donation credits to the year prior to death can generate a refund of income taxes paid in that year.
New legislation with respect to donations through a will or beneficiary designation will alter how the tax credit can be claimed for deaths after 2015. Donations through a will or beneficiary designation will be deemed to have been made by the deceased’s estate at the time the gift is completed, and the new rules add the option of claiming the donation on the estate return provided it is within the required timeframe. This change creates greater certainty with respect to the amount to be claimed because the value of the donation will be established at the time of the gift rather than shortly after the individual passes away. For example, assume Elena leaves one-half of her estate to ABC Charity. Under the current rules, the gift to ABC Charity can be claimed on Elena’s terminal and prior year individual income tax returns, but the exact value of the gift may not be easily established until the estate is wound-up. Under the new rules, the valuation date for the gift creates greater certainty and the option of claiming the gift on the estate return.
Provided that the gift is completed within 36 months of the date of death, the executor will have enhanced flexibility as to which return to claim the charitable tax credit on. The charitable tax credit can be claimed on the terminal tax return, the deceased’s prior year tax return, the estate return or, where applicable, carried forward to a future income tax return of the estate. The executor will be able to elect how much is claimed on which tax return. This is a significant opportunity which will enhance an estate’s ability to fully utilize the tax shield of charitable gifts made through a will or beneficiary designation.
The proposed rules enhance estate planning by making the valuation of charitable donations easier and increasing the number of returns where the charitable tax credit can be claimed. I/R 1600.01
Americans living in Canada fear they may have to pay huge capital gains tax bills when they sell their home as a result of the new US Foreign Account Tax Compliance Act (FATCA).
The issue concerns a rule buried in reams of Internal Revenue Service (IRS) tax guidance that states any US taxpayer selling a home in Canada worth more than US$250,000 must declare the gain on their returns and pay any tax due in the US.
Many US taxpayers failed to realise this rule affected them as the sale of a personal home in Canada is capital gains exempt under the country’s tax rules – but a saving clause in the US double taxation treaty with Canada means US citizens must still pay the tax to the IRS.
IRS alertNow FATCA has been introduced and the Canadian tax authorities and financial institutions are automatically sending financial information about US taxpayers to the IRS, Americans in Canada are worried cash lump sums from house sales showing up on their bank statements will trigger an alert with the IRS to question where the money came from.
Assuming the US taxpayer in Canada is an expat, or they would not have a main home north of the border, the FATCA reporting trigger for banks and other financial institutions is if an account controlled by a US taxpayer has a balance of more than US$200,000.
However, for US taxpayers with second homes in Canada, the trigger is just US$50,000.
Although US taxpayers get tax breaks on paying mortgage interest, they should declare and pay capital gains tax if they sell at a profit.
“It’s a stealth tax that very few people understand,” said Larry Jacobson, registered financial planner in Vancouver, Canada.
Six-figure tax bill“I had a client who owed the IRS a six-figure tax bill he had no idea applied to him.”
Until the summer of 2014, when FATCA came into force, many taxpayers did not disclose home sales on the US tax returns because the IRS had no way of checking their financial status.
FATCA has changed that – and with at least a million US citizens living in Canada, the income stream from capital gains could be considerable as house prices in many large Canadian cities have surged by tens of thousands of dollars in a short time.
According to the IRS, the first US$250,000 of any gain is exempt from tax, and that is a per taxpayer break, so a married couple get a US$500,000 exemption.
After that, capital gains tax is charged at between 15% and 20%.
- See more at: http://www.iexpats.com/fatca-fears-americans-selling-homes-canada/#sthash.f6zVoJ9s.dpuf