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.
Principal Issues: The executors made an application to the provincial court for an interpretation and a declaration regarding a clause of a taxpayer's will. Will donations made in accordance with this clause as interpreted and declared in the provincial court order qualify as gifts by will for purposes of subsection 118.1(5)?
Position: Yes.
Reasons: Pursuant to the court order, the executors are directed to make donations to specific charities. The executors are required to make donations of XXXXXXXXXX of the residue to the extent that such donations will minimize income tax payable. The executors have determined that the full XXXXXXXXXX share of the residue will need to be paid to registered charities.
XXXXXXXXXX 2004-008102
XXXXXXXXXX, 2004
Dear XXXXXXXXXX:
Re: Advance Income Tax Ruling Request
XXXXXXXXXX
This is in reply to your letter of XXXXXXXXXX in which you requested an advance income tax ruling on behalf of the above-noted taxpayer. We also acknowledge the additional information provided in subsequent correspondence and during our various telephone conversations in connection with your request (XXXXXXXXXX).
You advise that to the best of your knowledge and that of the taxpayer referred to above, none of the issues involved in the ruling request:
i. is in an earlier return of the taxpayer or a related person;
ii. is being considered by a tax services office or tax centre in connection with a previously filed tax return of the taxpayer or a related person;
iii. is under objection by the taxpayer or a related person;
iv. is before the courts or, if a judgment has been issued, the time limit for appeal to a higher court has not expired; and
v. is the subject of a ruling previously considered by the Directorate.
Unless otherwise stated, all references to a statute are to the provisions of the Income Tax Act, R.S.C. 1985, 5th Supplement, c.1, as amended, (the "Act") and all terms and conditions used herein that are defined in the Act have the meaning given in such definition unless otherwise indicated.
Our understanding of the relevant definitions, the facts, proposed transactions and their purposes is set out below.
DEFINITIONS
a) "Amended Amended Order" means the amended amended order of the Court of Queen's Bench (Surrogate Matter) dated XXXXXXXXXX granted pursuant to the Application and filed on XXXXXXXXXX.
b) "Amended Order" means the amended order of the Court dated XXXXXXXXXX granted pursuant to the Application and filed on XXXXXXXXXX,
c) "Application" means the application for advice and directions made on behalf of the Estate to the Court on XXXXXXXXXX,
d) "arm's length" has the meaning assigned by subsection 251(1),
e) "CCRA" means the Canada Customs and Revenue Agency,
f) "charitable organization" has the meaning assigned by subsection 149.1(1),
g) "Court" means the Surrogate Court of XXXXXXXXXX,
h) "XXXXXXXXXX A" means XXXXXXXXXX,
i) "Estate" means the estate of the late Mrs. X,
j) "Mrs. X" means the late XXXXXXXXXX,
k) "Order" means the order of the Court dated XXXXXXXXXX granted pursuant to the application and filed on XXXXXXXXXX,
l) "registered charity" has the meaning assigned by subsection 248(1),
m) "total charitable gifts" has the meaning assigned by subsection 118.1(1),
n) "Trusts" means the trusts arising from the Will,
o) "Trustees" means collectively, XXXXXXXXXX and XXXXXXXXXX A, and
p) "Will" means the last Will and Testament of Mrs. X dated XXXXXXXXXX.
FACTS
1) Mrs. X died on XXXXXXXXXX. Prior to her death, Mrs. X was an individual resident in Canada within the meaning of the Act. Her last residence was situated at XXXXXXXXXX. Her terminal return was filed at the XXXXXXXXXX Taxation Centre. The tax services office is the XXXXXXXXXX Tax Services Office.
2) The Will appointed the Trustees as executors and trustees of the Estate. Both of the Trustees are resident in Canada within the meaning of the Act.
3) In the Will, the property of Mrs. X for which she had the power of appointment or disposal was given, devised and bequeathed to her Trustees, upon the Trusts. The Will sets out how the Estate is to be administered and divided and the powers of the Trustees. The Court issued a Grant of Probate for the Will on XXXXXXXXXX.
4) Paragraph XXXXXXXXXX of the Will instructs the Trustees to pay all of Mrs. X's legally enforceable debts, funeral and testamentary expenses.
5) Paragraph XXXXXXXXXX of the Will deals with the disposition of Mrs. X's articles of personal, domestic and household use or ornament.
6) There are no specific bequests in the Will with the result that after the Trustees have utilized assets of the Estate to comply with the directions in paragraphs XXXXXXXXXX of the Will, the balance of the assets of the Estate forms the residue thereof.
7) Paragraph XXXXXXXXXX of the Will directs the Trustees to divide the residue of the Estate into XXXXXXXXXX equal shares. Clauses XXXXXXXXXX of the Will direct the Trustees to pay one share of the residue to each of XXXXXXXXXX of Mrs. X's children (other than XXXXXXXXXX A).
8) Clause XXXXXXXXXX of the Will reads:
"XXXXXXXXXX."
9) The terms of the Will do not allow for the discretionary encroachment by the Trustees or others on income or capital.
10) You advise that in the course of administering the Estate, the Trustees determined that, in order to minimize the tax liability to the Estate, the full XXXXXXXXXX share of the residue referred to in clause XXXXXXXXXX of the Will would be required to be paid to registered charities. To that end, XXXXXXXXXX A, the person who was given discretion to choose the charities to receive donations pursuant to clause XXXXXXXXXX of the Will, directed the Trustees to make the gifts to certain registered charities and in certain amounts.
11) In the course of performing their due diligence review in the administration of the Estate and so as to ensure that they act in accordance with the directions contained in the Will, the Trustees requested from the solicitors for the Estate, confirmation that the wording of clause XXXXXXXXXX of the Will was sufficient to allow an income tax benefit to be realized from any charitable donations made under the authority of clause XXXXXXXXXX of the Will.
12) Based on the advice of the solicitors, the Application was made to the Court for an interpretation and declaration of clause XXXXXXXXXX of the Will and such Application was supported by an affidavit of XXXXXXXXXX A. The Application stated that Mrs. X took XXXXXXXXXX A's XXXXXXXXXX into consideration at the time she completed her Will in allowing XXXXXXXXXX A the discretion to allocate her share of the Estate to the charities of her choosing.
13) Notice of the Application was given to all affected parties including the Department of Justice as solicitors for the CCRA.
14) The Application was heard by XXXXXXXXXX on XXXXXXXXXX with counsel from the Department of Justice on behalf of the CCRA, present. After the Court heard the Application and the submissions from all counsel, the Court granted the Order. The solicitors for the Estate noted a potential inconsistency in the Order and a draft amended order was prepared and delivered to the Department of Justice for consideration, review and consent. Such consent was obtained and the Court granted the Amended Order.
15) Paragraph XXXXXXXXXX of the Amended Order reads:
"XXXXXXXXXX.
16) Paragraph XXXXXXXXXX of the Amended Order incorporates the directions of XXXXXXXXXX A as to the institutions that are to receive the XXXXXXXXXX share of the residue of the Estate.
17) Since one of the institutions named in paragraph XXXXXXXXXX of the Amended Order was not a registered charity and two other of the institutions were referred to by a name other than their respective legal names, a draft amended amended order to revise paragraph XXXXXXXXXX of the Amended Order was prepared and delivered to the Department of Justice for consideration, review and consent. Such consent was obtained and the Court of Queen's Bench of XXXXXXXXXX (Surrogate Matter) granted the Amended Amended Order.
18) Paragraph XXXXXXXXXX of the Amended Amended Order reads:
"XXXXXXXXXX".
19) The Will does not provide any direction with respect to whether the gifts must be made in cash or other property.
20) Each charity named in paragraph XXXXXXXXXX of the Amended Amended Order is a charitable organization and a registered charity.
21) Mrs. X dealt at arm's length with the directors, trustees, officers and other like officials of each charity named in paragraph XXXXXXXXXX of the Amended Amended Order.
PROPOSED TRANSACTIONS
22) Subject to the receipt of a favourable income tax ruling, the Trustees will gift to each registered charity named in paragraph XXXXXXXXXX of the Amended Amended Order and described in 18 above, an amount equal to the amount of the gift that the Amended Amended Order specifies may be made to that charity. Payments of the gifts will be made in cash or marketable securities.
PURPOSE OF THE PROPOSED TRANSACTIONS
23) The purpose of the proposed transactions is to gift to certain registered charities an amount aggregating to XXXXXXXXXX of the residue of the Estate in accordance with the terms of the Will and the Amended Amended Order.
RULING GIVEN
Provided that the preceding statements constitute a complete and accurate disclosure of all the relevant facts, proposed transactions, and purpose of the proposed transactions, and provided further that the proposed transactions are carried out as described above, we confirm that:
Subject to subsection 118.1(13) and pursuant to subsection 118.1(5), the gifts described in 18 above will, for purposes of section 118.1, be deemed to have been made by Mrs. X immediately before she died and, accordingly, provided the recipient charity is a registered charity the fair market value of that gift to that charity will be included in determining the total charitable gifts of Mrs. X for the XXXXXXXXXX taxation year if an official receipt containing prescribed information is filed as required by subsection 118.1(2).
The above ruling is given subject to the limitations and qualifications set out in Information Circular 70-6R5 dated May 17, 2002 and is binding on the CCRA provided that the proposed transactions are completed before XXXXXXXXXX.
Yours truly,
XXXXXXXXXX
Manager
Financial Institutions Team
Financial Industries Division
Income Tax Rulings Directorate
Policy and Planning Branch
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 2004
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 2004
Email this Content