3 October 2014 Internal T.I. 2014-0540621I7 - Estate of the late XXXXXXXXXX

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 TSO has requested our comments in regard to arguments made by the estate representatives in regard to our positions in TI 2013-049014.

Position: Comments provided to TSO.

Reasons: See below.

October 3, 2014

Jason Shepherd HEADQUARTERS
Calgary TSO Audit Dominic Tiu
220 - 4 Ave SE, Room 667 (416) 973-8002
Calgary AB T2G 0L1

2014-054062

Estate of the Late XXXXXXXXXX

We are writing in response to your July 21st, 2014 request for our comments on the representation submitted by the representative (the "Representative") of the Estate of the late XXXXXXXXXX (the "Estate") with respect to our technical interpretation ("TI") 2013-049014 dated January 2nd, 2014 regarding three charitable donations totaling $XXXXXXXXXX made after the date of death of the late XXXXXXXXXX (the "Deceased"). The Representative submits that:

• key facts were missed or omitted in the TI;
• the Executors of the Estate had sufficient discretion to determine both how much to donate to the Foundation (as defined in the TI) and when the donation was to be made;
• the legislative tax policy intent of subsection 118.1(15) of the Income Tax Act (the "Act") was not intended to be punitive and deny the Estate the ability to claim a deduction in the year of death; and
• the 2014 Federal Budget proposes to amend subsection 118.1(5) to allow for discretion and increased flexibility in the claiming of donations.

Our Comments

Key facts in TI 2013-049014

The quantum of the charitable gift under subsection 118.1(5) of the Act ("Gift by Will") to the Foundation is equal to 50% of the fair market value ("FMV") of the residue of the Estate as at the time of death of the Deceased. Based on the agreed facts, the FMV of the subject residue as at the time of death is about $XXXXXXXXXX. The executors/trustees must first account for such Gift by Will of about $XXXXXXXXXX with respect to distributions, directly or indirectly to the Foundation. In a situation where the subject residue dropped in value after the death of the Deceased, the distributions, directly or indirectly to the Foundation in respect of the Gift by Will should reflect 50% of the lesser FMV. In other words, up to $XXXXXXXXXX of distributions to the Foundation are Gifts by Will.

Discretion of the executor/trustee

It is our view that if the occurrence or quantum of a charitable gift is subject to the discretion of an executor/trustee, such a charitable gift is not a Gift by Will under the current wording of subsection 118.1(5) of the Act. A gift of the residue or a specified portion of the residue of an estate can be a Gift of Will when the FMV of the subject residue could be reasonably ascertained at the time of death of the deceased. In the current case, up to $XXXXXXXXXX of the subject residue of the Estate distributed, directly or indirectly to the Foundation pursuant to the terms of the will of the Deceased are Gifts by Will for purposes of subsection 118.1(5) of the Act.

Applicable legislation

As currently worded, subsection 118.1(5) of the Act generally applies where an individual by the individual's will makes a gift, with the result being that the individual is deemed to have made the gift immediately before the individual died. In our view, the comments from the Representative in regard to tax policy intent are not persuasive.

The 2014 Federal Budget

The 2014 federal Budget proposed to amend section 118.1 of the Act. Given that the proposed legislative changes, as released by the Department of Finance on August 29, 2014 will, if passed into law, apply to deaths that occur after 2015, it is our view that this clearly reflects a change in tax policy rather than an attempt to clarify any existing legislation or policy.

We trust our comments will be of assistance.

Phil Kohnen
for Director
Trusts Section I
Financial Industries and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch