|
By Ross Marowits
Canadian Press
Wednesday, July 04, 2007
MONTREAL (CP) - BCE Inc. (TSX:BCE) shares may become the gift of choice over the next two years as investors seek to avoid the headache of trying to figure out their hefty capital gains tax bill by instead donating the telecom's shares to charity.
Adrian Mastracci, fee-only portfolio manager at KCM Wealth Management in Vancouver, says, "There's a lot of money coming to individuals across Canada, a number of people will say I should be donating a little more."
That's just one of the options shareholders will pursue in the coming months as they determine how to proceed with the windfall that would result from the possible sale of the company to a consortium led by the Ontario Teachers Pension Plan.
BCE shares have increased by 42 per cent over the past few months as the company's board has contemplated its sale and subsequent privatization.
That's left virtually all shareholders with a nice problem on their hands: pay taxes on huge gains in the value of their holdings or donate them to charity and get a tax writeoff.
Many Canadians may choose to replace their regular cash donations with gifts of BCE shares, says Adrian Mastracci, a portfolio manager at KCM Wealth Management.
"There's a lot of money coming to individuals across Canada, a number of people will say I should be donating a little more," he said in an interview from Vancouver.
"I think there will be a bigger impetus to make a donation this year or next year whenever this thing closes."
Donating shares will alleviate the burden of long-time BCE investors who will be forced to determine the original cost of their shares in order to calculate their capital gains.
The calculations could be a nightmare for some and a financial bonanza for accountants and tax planners.
"There's a lot of numbers to be crunched whenever you sell it," he said.
Investors who have moved several times and hold various investment accounts may have to guess on the cost of the shares, after including dividend reinvestments and stripping away stock splits and the spinning out of Nortel and Bell Aliant.
"It's going to take a lot of time because there's so many possible transactions. This thing has been around a long time and people may not have all the documentation."
Mastracci believes that Revenue Canada will be reasonable about calculations if the tax filer uses suitable numbers with reasonable explanations.
Saying you paid $25 in 1980 won't cut it, he said.
Bell Canada shares is the most widely stock in the country. There are more than 800 million shares outstanding. At Wednesday's closing, they were worth $41.32, up seven cents on the day on the Toronto Stock Exchange.
Those who have inherited their shares would determine their cost from the date they acquired the shares.
Cleo Hamel, senior tax analyst for H&R Block, says donating shares is a great way to replace normal cash donations with a BCE contribution.
"And it definitely makes the bookkeeping that much easier," she said in an interview.
In the 2006 federal budget, the government made the donation of publicly traded securities to registered charities totally free of capital gains taxes. The tax rate had been half the normal rate.
With the measure being so new, many taxpayers remain unfamiliar with the option, said Hamel.
"Until people are really familiar with it, we might see a few more but not a lot."
The tax challenges posed by the BCE sale shouldn't be overwhelming for tax planners, accountants and others, she said.
"I think it's just a normal course of business. Clients these days are very unique with the tax situations that they are in. For someone to come in with a situation like this is not a panic. I don't see we would have a run on people coming in."
Shareholders who don't plan to donate will face a 50 per cent capital rate on the gains they've made.
Investors who purchased their shares 20 to 40 years ago at perhaps $6 to $9 a piece would get hit with a large tax bill.
For example, anyone who sells their shares for $41 based on a cost of $6 would realize a $35 gain and be forced to pay $7.70 based on a maximum tax rate of 22 per cent.
Donating the shares would wipe out the tax liability and generate a tax credit for the $41.
The prospect of large tax bills angered many BCE shareholders who attended the company's recent annual meeting.
"It's a nice headache to have," said Mastracci, who added that many Canadians will gloss over the planning that's required of them.
He said the BCE sale could present the opportune time for investors to finally sell their shares of Nortel and other companies and record losses to offset their BCE gains.
"Clean up the portfolio," he advises. "Don't just sit there with that rat's nest because it just keeps on going and going."
While most BCE shareholders will hold off selling on the hope of a higher competitive offer, the risk averse may see very little upside remaining and opt to sell now and divert their gains for other investments, said Mastracci.
Whatever investors do, he cautions people not to rush into any sale decision.
"You can sell next month or before the end of the year if you want to solidify for this year."
|
