6 March 2001 Internal T.I. 2000-0005187 - Gift by Will

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues:

Where an individual, by his will, provides for a donation to be made to a private foundation to be established by the individual's estate, would the donation qualify as a gift by will for the purposes of subsection 118.1(5)?

Position:

Yes, if the donation otherwise qualifies as a gift by will and the private foundation is a qualified donee at the time the gift is made.

Reasons:
We have reconsidered our position as stated at the 1999 APFF   Conference (E9M19190) and we are now of the view that the fact that the private foundation did not exist at the time of the individual's death will not, in and of itself, preclude the donation from otherwise qualifying as a gift by will as long as the private foundation is a qualified donee at the time the gift is actually made.
			March 6, 2001

	Charities Directorate	Income Tax Rulings
	Carl Juneau 	  Directorate
	Director 	J. Leigh
	Policy and Communications Division	952-1505

2000-000518

Gift by Will

This is in reply to your memorandum of January 28, 2000 requesting our views as to the application of subsection 118.1(5) of the Income Tax Act (the "Act") to a donation made to the XXXXXXXXXX (the "Foundation"). You attached a letter dated December 13, 1999 from the Foundation's representative as well as a copy of XXXXXXXXXX will. We apologize for the delay in responding but as indicated below it was necessary for us to reconsider a previous position which required the involvement of a number of participants.

Our understanding of the situation is that XXXXXXXXXX died on XXXXXXXXXX. In his will, XXXXXXXXXX directed the trustee of his estate to set aside and keep invested the residue of his estate in a fund to be known as the "XXXXXXXXXX". The trustee is to annually pay or transfer the net income of the fund to XXXXXXXXXX specific charities. On XXXXXXXXXX, the trustee applied to register the Foundation as a private foundation retroactive to XXXXXXXXXX. In your letter dated February 1, 2001, you informed the representative that you were unable to allow a registration date of XXXXXXXXXX since the Foundation did not exist on that date. However, we understand that you are awaiting information from the representative as to when the residue of the estate was transferred to the trustee of the Foundation in order to establish an effective registration date.

Our Comments

Subsection 118.1(5) of the Act states as follows:

"Subject to subsection (13), where an individual by the individual's will makes a gift, the gift is, for the purpose of this section, deemed to have been made by the individual immediately before the individual died."

It has been our position that for subsection 118.1(5) of the Act to apply, the terms of the will must provide that a specific property, a specific amount or a specific percentage of the residue of the estate is to be gifted to a qualified donee named in the will without any discretion by the trustees (i.e., the qualified donee on reading the will can expect that a specific gift will be made to it). Accordingly, when we were asked in Question 11 at the 1999 APFF Conference whether subsection 118.1(5) of the Act would apply to a donation made to a private foundation established pursuant to the terms of an individual's will, our response was that it did not since the private foundation was not in existence at the time of the individual's death.

We have reconsidered our position on this issue and we are now of the view that the fact that the private foundation did not exist at the time of the individual's death will not, in and of itself, preclude a donation from otherwise qualifying as a gift by will for the purposes of subsection 118.1(5) of the Act as long as the private foundation is a qualified donee at the time the gift is actually made. In our view, the wording of subsection 118.1(5) of the Act provides sufficient latitude to enable us to interpret the provision in this manner since there is no express requirement in subsection 118.1(5) of the Act that the donee be in existence at the time of individual's death. In fact, there is no mention of a donee in subsection 118.1(5) of the Act. It would, in our view, be difficult to sustain a position that a donation made to a private foundation established under the terms of the individual's will is not a gift by will because the foundation was not in existence at the time of death.

We note that the completion of the gift should occur within a reasonable period after the date of death. Where the gift to the private foundation occurs after the assessment of the deceased's final tax return, the tax return may be reassessed, subject to the time limitations in the Act for reassessments, to allow a charitable tax credit for the gift to the extent that it is supported by an official tax receipt.

We hope that our comments are of assistance.

F. Lee Workman
Manager
Financial Institutions Team
Financial Industries Division
Income Tax Rulings Directorate