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 CCRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.
Principal Issues:
An individual, in his or her will, provides for a donation of a specified percentage of the liquidated assets to be made to a registered charity. Will subsection 118.1(5) apply to all payments made by the Estate to the specified charitable organization during the period of time between the date of death of the individual and the final payment if there is a delay in time, owing to market conditions, in liquidating a major asset of the deceased taxpayer?
Position TAKEN:
None. Insufficient information provided. General comments given.
Reasons FOR POSITION TAKEN:
XXXXXXXXXX 2000-005318
P. Diguer
April 18, 2002
Dear XXXXXXXXXX:
Re: Subsection 118.1(5) of the Income Tax Act (Canada) (the "Act")
This is in reply to your letter dated October 23, 2000, in which you request our views on the application of the Act in regards to amounts paid to a charitable organization by a the estate of a deceased taxpayer.
In particular you describe a situation where an individual owns all the issued and outstanding shares of a taxable Canadian corporation, A Co. A Co owns a substantial apartment complex (the Apartments) located in a large city. The individual has specified in his or her will that all of his or her assets should be liquidated and that a portion (less than 100%) of all of the funds held by the estate (the "Estate") should be given to a specific charitable organization.
Additionally, you state the following:
(a) On the death of the individual, his or her Estate will take over operation of the Apartments.
(b) It is anticipated that in order to achieve the highest maximum value for the Apartments the Estate may be required to operate the Apartments for a period of time.
(c) The timing and amount of this donation will be entirely dependent on a determination by the trustees of the Estate as to when to sell the Apartments.
(d) Because of the time factor it will be impossible to determine at the date of death the ultimate donation to be made to the charity. Additionally, funds will probably be paid out of the Estate to the charity over a period of years as the funds become available.
In particular you ask whether a donation under such circumstances would qualify.
Written confirmation of the tax implications inherent in particular transactions are given by this Directorate only where the transactions are proposed and are the subject matter of an advance ruling request submitted in the manner set out in Information Circular IC-70-6R4 dated January 29, 2001. Where the particular transaction is completed, the inquiry should be addressed to the relevant Tax Services Office. Although we are unable to provide any opinion in respect of the specific transactions described in your letter, we have set out some general comments which we hope are of assistance to you.
The issue as we understand it is whether subsection 118.1(5) would apply to all payments made by the Estate to the specified charitable organization during the period of time between the date of death of the individual and the final payment by the Estate.
A definitive response to your queries would require a complete review of the specific facts as they relate to a particular situation including several factual elements not mentioned in your letter. For example, whether there are income beneficiaries named in the will with respect to income received by the Estate or any specific bequest to other beneficiaries named in the will with respect to the Apartments. In addition, the information set out in your letter appears to be incomplete. For example, it is not clear what happens to the shares of A Co or how the Estate acquired direct ownership of the Apartments or what the authority of the trustees is to operate, rather than liquidate the Apartments.
Subsection 118.1(5)
Subsection 118.1(5) deems gifts made by an individual by will to have been made in the year of the individual's death. Where subsection 118.1(5) applies, the deceased would be entitled to a deduction pursuant to subsection 118.1(3), in the year of death, even though the transfer is made after death by the deceased's representatives, or by virtue of subsection 118.1(4) to a deduction in the year preceding the year of death.
Whether or not a gift is considered to have been made by a taxpayer "by his or her will" is a question of fact. The CCRA's view is that where the wording of the will is
such that:
a) it is clear that the deceased taxpayer intended to make a donation to a registered charity;
b) the amount of the donation to be made to the registered charity is stipulated as a specific percentage of the deceased's Estate, or any residual, if applicable;
c) the will clearly specifies what is to be paid from the Estate in determining the amount of any residual, if applicable; and
d) the will does not provide for discretionary capital encroachments by the trustees of the Estate or others,
then a donation will be considered to have been made by the deceased by his or her will for the purposes of subsection 118.1(5).
In the situations described above, the completion of the gift should occur within a reasonable time period after the date of death. If the gift to the registered charity is not completed until after the assessment of the deceased's final tax return, a request to adjust the tax return, subject to the time limitations in the Act for reassessments, should be sent to the appropriate tax centre along with the official tax receipt.
We trust that our comments will be of assistance to you.
Yours truly,
Paul Lynch
for Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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