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. Whether a gift of the residue of a taxpayer's estate to a registered charity would constitute a gift by will under subsection 118.1(5).
2. If the residue gifted consists of publicly traded shares, can the executor elect under subsection 118.1(6)?
3. If the residue gifted consists of publicly traded shares, will the reduced inclusion rate under paragraph 38(a.1) apply to a capital gain arising on the deemed disposition of such shares under section 70?
Position:
1. Yes, provided that the gift is made in accordance with the terms of the will.
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 2000-001521
Attention:
January 11, 2001
Dear Sirs:
Re: Gift by Will
This is in reply to your facsimile letter dated October 25, 1999 which was forwarded to us for reply by the Saskatoon Tax Services Office on March 20, 2000. You have requested 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") in a situation where the terms of a taxpayer's will provide for a gift of the residue of the estate to a qualified donee and publicly traded shares held by the taxpayer prior to death form all or part of the residue. You note that there is no provision in the will for any encroachment on the capital of the estate other than the normal payment of debts and administration fees.
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 the residue of the individual's estate be gifted to a specific qualified donee, it is our view that the donation of the residue would generally qualify as a gift by will for the purposes of subsection 118.1(5) of the Act.
If the residue gifted includes shares held by the deceased and the fair market value of the 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 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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