Use your holding company to get more value from your gift.
Owners of holding companies that generate sufficient earnings to leverage the corresponding tax benefits.
A holding company can be a tax-efficient solution for managing your donation strategy.
Your holding company has a capital dividend account (CDA), which allows it to pay tax-free dividends to shareholders.
The CDA balance includes the non-taxable portion of capital gains following the disposal of shares and life insurance proceeds over and above the adjusted cost basis of the policy.
Since 2006, capital gains following a gift of publicly traded securities have been tax-exempt. By donating securities by way of the holding company, you can therefore add an amount equal to the non-taxable portion of the capital gain to the CDA.
Eligible securities include shares, bonds, mutual fund units and other securities listed on a Canadian, U.S. or international exchange.
This amount will be payable to shareholders, free of personal income tax if, prior to the dividend payout, the proper tax-related choices have been submitted in the prescribed manner.
If you plan to gift the death benefit arising from a life insurance policy, it may also be worth looking into the possibility of putting the policy in the holding company’s name.
The HEC Montréal Foundation does not provide financial or legal advice. The examples used here are for illustrative purposes only. Please consult your financial or legal advisor to ensure that the selected donation option takes into account your specific circumstances as well as all applicable legal and tax implications.