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:
1. A taxpayer's will provides that a gift of a specific amount be made to a specific charity. If the executor uses shares to make the gift, can the executor elect under subsection 118.1(6)?
2. A taxpayer's will provides that a gift in cash or shares be made to a specific charity. If the executor uses shares to make the gift, can the executor elect under subsection 118.1(6)?
3. Will the reduced inclusion rate in paragraph 38(a.1) apply to a capital gain arising on the deemed disposition of the shares in either scenario?
Position:
1. Yes, provided the requirements of subsection 118.1(6) are met.
2. Yes, provided the requirements of subsection 118.1(6) are met.
3. Yes, provided the requirements of paragraph 38(a.1) are met.
Reasons:
1. Previous opinions.
2. Previous opinions.
3. Where the gift is made in accordance with the terms of the will, it is our view that the reduced inclusion rate will apply if the requirements of paragraph 38(a.1) are otherwise met.
XXXXXXXXXX 2000-001175
Attention: XXXXXXXXXX
January 11, 2001
Dear Sirs:
Re: Gift by Will
This is in reply to your letter dated February 28, 2000 requesting our views with respect to the application of paragraph 38(a.1) and subsections 118.1(5) and (6) of the Income Tax Act (the "Act") to two hypothetical situations.
In the first situation described, an individual directs in his will that his executors make a gift of a specific amount to a particular charitable organization. The terms of the will provide that his executors make the gift in cash and/or publicly traded shares. The facts in the second situation are the same as in the first but there is no direction in the will to make the gift in cash or in specie. You have asked whether any publicly traded shares that are included in the gift in either situation would, pursuant to subsection 118.1(5) of the Act, be subject to the treatment provided by subsection 118.1(6) and paragraph 38(a.1) of the Act.
Subsection 118.1(5) of the Act generally provides that, where an individual by the individual's will makes a gift, the gift is deemed to have been made by the individual immediately before the individual died for the purposes of section 118.1 of the Act. Where the terms of an individual's will stipulate that a specific amount be gifted to a specific qualified donee without stipulating as to the form of the gift (i.e., in cash or in specie) and the executor makes a gift of shares to the qualified donee, it is our view that the shares gifted would generally qualify as a gift by will for the purposes of subsection 118.1(5) of the Act to the extent of the amount specified in the will. Similarly, if the terms of the will permit the gift to be made in cash or in specie and the executor makes a gift of shares, the shares gifted would generally qualify as a gift by will for subsection 118.1(5) purposes to the extent of the amount specified in the will.
If the shares gifted are shares that were held by the deceased and the fair market value of such shares immediately before the individual's death is greater than the adjusted cost base of the shares, the executor of the estate may make a designation under subsection 118.1(6) of the Act to reduce the capital gain that would otherwise result from the deemed disposition under subsection 70(5) of the Act. The designated amount, which cannot be less than the adjusted cost base or greater than the fair market value of the shares, is deemed to be the proceeds of disposition of the shares and, for the purposes of section 118.1 of the Act, the fair market value of the gift made by the deceased.
We note that the reduced inclusion rate under paragraph 38(a.1) of the Act may apply to a capital gain resulting from the deemed disposition of the gifted shares under subsection 70(5) of the Act. For paragraph 38(a.1) of the Act to apply, the shares must be listed on a prescribed stock exchange and be gifted to a qualified donee other than a private foundation.
While we hope that our comments will be of assistance to you, they are given in accordance with the practice referred to in paragraph 22 of IC-70-6R3 and are not binding on the Agency in respect of any particular situation.
Yours truly,
Manager
Financial Institutions Team
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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