The capital gains reduction available to the charity is the lesser of the capital gains pool and 3.5% of the amount on line 5900 (average value of property not used directly in charitable activities or administration) on the registered charity information return. The encroachment, however, will not increase the charity's disbursement quota with respect to the disposition of enduring property. (Capital losses can be ignored for the purpose of the capital gains reduction calculation.) A capital gain is realized when capital property (such as stocks, units of mutual funds, land buildings and equipment) is sold or considered to have been sold for more than the total of its adjusted cost base and the outlays and expenses incurred to sell the property. The capital gains reduction is a calculation that allows a registered charity to encroach on capital gains from the disposition of enduring property to help the charity meet its 3.5% disbursement quota obligation.
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