11 January 2001 External T.I. 2000-0015105 - GIFT BY WILL-RESIDUE

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. Where the terms of an individual's will provide for a gift of a specific percentage of the residue of the individual's estate to a specific registered charity, would the gift constitute a gift by will for the purposes of subsection 118.1(5)?

2. If the terms of the will permit the trustee to distribute the residue in cash or in specie and the trustee transfers publicly traded shares to the charity in satisfaction of its residual interest in the estate, will the reduced inclusion rate under paragraph 38(a.1) apply?

Position:

1. Yes, provided that the gift is made in accordance with the terms of the will.

2. Yes, provided the gift is made in accordance with the terms of the will and the requirements of paragraph 38(a.1) are met.

Reasons:

1. Previous opinions.

2. Previous opinions.

XXXXXXXXXX 2000-001510

January 11, 2001

Dear Madam:

Re: Gift by Will

This is in reply to your facsimile letter dated March 20, 2000 requesting our views with respect to the application of paragraph 38(a.1) and subsection 118.1(5) of the Income Tax Act (the "Act") to a gift of publicly traded shares in the following hypothetical situation.

The taxpayer's will does not provide for a life interest to any individual. It does, however, provide for 25% of the residue of the taxpayer's estate remaining after specific bequests and the payment of debts and administrative costs to be gifted to a particular charity. You note that the terms of the will allow the trustee to determine which assets of the estate will be sold or retained and distributed to the beneficiaries in satisfaction of their interests in the estate. The residue includes publicly traded shares.

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 percentage of the residue of the individual's estate be gifted to a specific qualified donee, it is our view that the gift would generally qualify as a gift by will for the purposes of subsection 118.1(5) of the Act. In our opinion, the fact that the terms of the will permit the trustee to distribute the residue in cash or in specie would not necessarily preclude the gift from qualifying as a gift by will as long as the actions taken by the trustee are reasonable and in accordance with the terms of the will.

If the gift to the charity includes shares held by the deceased and subsection 70(5) of the Act applies to deem the deceased to have disposed of such shares for proceeds of disposition equal to their fair market value immediately before death, the reduced inclusion rate under paragraph 38(a.1) of the Act may apply to a capital gain resulting from the deemed disposition. 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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