David A. Altro is a frequent contributor to Paul Delean’s business column in the Montreal Gazette. Click here to view the article online or scroll down to read David’s answer to the second question.
Tax strategy: Donating a painting can pay off
Tuesday, May 28, 2013
Donating a painting and buying a Florida condo were among the topics raised in the latest batch of reader letters. Here’s what they wanted to know.
Q: I won a painting in a raffle, supposedly worth several thousand dollars. It’s too big for my purposes. I was told I could donate it to a museum and get a tax credit for 125 per cent of its worth. Is this exact?
A: No, but this could still work out quite nicely for you. The 125 per cent would be the starting point for calculation of the provincial tax credit if you donate a work of art to a Quebec museum. In such cases, Quebec allows for a 25 per cent markup of its market value. The credit itself would be 20 per cent on the first $200 and 24 per cent thereafter. So with the bonus, you’d end up with a provincial credit nearing 30 per cent of the painting’s value – and that’s just on your provincial tax return. The amount of the federal credit will hinge on whether you claimed charitable deductions in the past five years; in the last budget, Ottawa introduced a new “supercredit” for people who haven’t made a charitable donation since 2007. It boosts the federal credit by 25 per cent, to as much as 54 per cent, on amounts up to $1,000. Beyond that, it’s the usual 29 per cent. If you claimed charitable contributions since 2007, you’ll get 15 per cent on the first $200 and 29 per cent for any amount above that. Long story short, your combined tax credits from Ottawa and Quebec could be upwards of 50 per cent of the painting’s value. Remember, though, the fair market value of the artwork needs to be determined by an accredited appraiser before the donation is made.
Q: We just had our offer to purchase a condo in Florida accepted. Since then, we’ve heard all kinds of horror stories concerning probate and estate taxes. We will be using the property for personal use and have no intention of renting. I’ve heard it would be best to put the property in a cross-border trust, but I don’t know anything about it. Can you enlighten us on this matter?
A: Cross-border expert David Altro of Altro Levy LLP says every situation is different, so what’s best for one person isn’t necessarily the best option for someone else. In this case, he said, a cross-border trust may be beneficial because it avoids one of the issues mentioned, probate. “In the U.S., probate is the legal proceeding that enables the decedent’s estate to be distributed and can take up to 18 months to transfer title from you to your children.” Altro said. “With a cross-border trust, probate is avoided on death because the trust does not die. It also protects against mental incapacity issues and provides a simple way to transfer control of the asset so that your family can act on your behalf when you can’t.”
As for U.S. estate tax, Altro said it can apply, even to Canadians, if they own U.S. property, their U.S. taxable estate is greater than $60,000, and their worldwide estate (including life insurance) is greater than $5.2 million. “Although the cross-border trust does not completely eliminate U.S. estate tax liability, it provides mechanisms to reduce or defer the tax on death,” he said.
The Gazette invites reader questions on tax, investment and personal finance. If you have a query you’d like addressed, send it to Paul Delean, Gazette Business Section, Suite 200, 1010 Ste. Catherine St. W., Montreal, Que., H3B 5L1 or to by email to firstname.lastname@example.org