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: Whether an individual may claim a non-refundable tax credit on their final return for a gift by will, to a U.S. organization.
Position: Pursuant to subsection 118.1(4.1) and (5) a gift by will is deemed to be made by the estate at the time the gift is transferred to the donee. Paragraph 118.1(5.1)(b) applies in particular to a gift made by a graduated rate estate (“GRE”) of an individual if the subject of the gift is property that was acquired by the estate on and as a consequence of the death or is property that was substituted for that property. Pursuant to paragraph (c) of the definition of “total charitable gifts” in subsection 118.1(1), where a gift is made to which subsection 118.1(5.1) applies, the estate will have the flexibility to allocate the donation to any of: (a) the last two taxation years of the deceased individual; (b) the year of the donation or any of the five following years of the estate; or (c) any preceding year of the estate in which it is the individual’s GRE.
Reasons: Legislation and prior views.
Karri Lea Estabrooks
August 25, 2021
Subject: Request for Technical Interpretation – Gift by Will
We are writing in response to your request of October 10, 2020 regarding whether a bequest made by an individual, in their will, to a U.S. organization will qualify for a charitable donation credit on the individual’s final return. In the situation you describe, an individual intends to make a charitable gift, upon death, pursuant to the terms of the individual’s will. We apologize for the delay in responding.
This technical interpretation provides general comments about the provisions of the Income Tax Act (the Act) and related legislation (where referenced). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R11, Advance Income Tax Rulings and Technical Interpretations.
Section 118.1 of the Act generally provides that an individual may claim a non-refundable tax credit for the eligible amount of a gift made to a “qualified donee”, as defined in subsection 149.1(1) of the Act. The eligible amount of the gift is generally defined as the amount by which the fair market value of the gifted property exceeds the amount of the advantage, if any, in respect of the gift. The tax credit can be claimed, within certain limits, if the gift is supported by an official donation receipt issued by the qualified donee. A list of qualified donees can be found on our website at https://www.canada.ca/en/revenue-agency/services/charities-giving/list-charities/list-charities-other-qualified-donees.html.
Gifts on death
In general terms, pursuant to subsections 118.1(4.1) and (5) of the Act, if an estate arises on and as a consequence of the death of an individual and a gift is made pursuant to the individual’s will, the gift is deemed to be made by the deceased individual’s estate (and not by the deceased individual) at the time the gifted property is transferred to the donee.
Paragraph 118.1(5.1)(b) of the Act applies to a gift (including a gift by will) made by an individual's “graduated rate estate” (GRE) if the gifted property is property that was acquired by the GRE on and as a consequence of the death or is property that was substituted for that property. Subsection 248(1) of the Act defines a GRE of an individual at any time, as the estate that arose on and as a consequence of the individual's death, if all of the following requirements are met:
(a) that time is no more than 36 months after the death;
(b) the estate is at that time a testamentary trust;
(c) the estate must include the deceased individual’s social insurance number in its T3 return of income for each taxation year of the estate that ends after 2015 and during the 36-month period after the death of the individual;
(d) the estate designates itself as the deceased individual's GRE, by filing a T3 return of income for its first taxation year; and
(e) no other estate designates itself as the GRE of the deceased individual.
A gift where subsection 118.1(5.1) of the Act applies can be made within 60 months of an individual’s death by the individual’s (i) GRE; or (ii) former GRE if that former GRE continues to meet all of the above-noted requirements of a GRE except for the 36 month time limit referred to in paragraph (a) above.
Pursuant to paragraph (c) of the definition of “total charitable gifts” in subsection 118.1(1) of the Act, the eligible amount of a charitable gift made in a taxation year by a deceased individual’s estate (including a GRE and former GRE) is included as a charitable gift of the estate in the year in which the gift is made. Any unused charitable gifts of the estate can be carried forward to any of the five subsequent taxation years.
Moreover, if a charitable gift is made in a taxation year by an individual’s estate that is a GRE or former GRE where subsection 118.1(5.1) of the Act applies, the eligible amount of the charitable gift can be carried back and included as a charitable gift when computing the donation tax credit for
(a) the last two taxation years of the deceased individual; or
(b) any preceding taxation year of the estate if the estate is the individual’s GRE.
Charitable gift limits
Pursuant to paragraph (a) of the definition “total gifts” in subsection 118.1(1) of the Act, an individual’s total charitable gifts for a taxation year is restricted to the least of the following amounts:
(i) the individual’s total charitable gifts claimed for the year;
(ii) the individual’s income for the year in which the individual dies and for the immediately preceding year; and
(iii) in any other case, the lesser of the individual’s income for the year and the amount determined by a formula that generally includes, among other things, the total of,
- 75% of the individual’s income for the year; and
- 25% of any taxable capital gains in respect of a gift (to the extent that the capital gain was not excluded from the individual's taxable income by the lifetime capital gains exemption in section 110.6) plus 25% of any recapture of depreciation included in income as a result of the making of the gift.
The income threshold described in (ii) above does not apply to charitable gifts that are claimed by an estate (including a GRE).
Gifts to U.S. organizations - non-qualified donee
The Canada-U.S. Tax Convention (the Treaty) provides limited tax relief with respect to gifts made by Canadian residents to certain U.S. organizations that are not qualified donees. Pursuant to paragraph 7 of Article XXI of the Treaty, a gift made by a resident of Canada in a taxation year to an organization that is resident in the U.S. that is generally exempt from U.S. tax, and that could qualify in Canada as a registered charity if it were created or established and resident in Canada, will be treated as a gift to a registered charity. In this regard, the amount of relief that would be available under the Act is restricted to the income of the resident for that year from U.S. sources. However, the restriction to income from U.S. sources does not apply to the eligible amount of a gift to a college or university at which the resident or a member of the resident's family is or was enrolled. The CRA accepts that any organization that is exempt under section 501(c)(3) of the U.S. Internal Revenue Code will qualify for the purposes of paragraph 7 of Article XXI of the Treaty.
Further guidance in this regard may be found in guides P113, Gifts and Income Tax, T4011, Preparing Returns for Deceased Persons and T4013, T3 Trust found on the CRA website https://www.canada.ca/en/revenue-agency/services/forms-publications/forms.html.
We trust that these comments will be of assistance.
Financial Institutions Section
Financial Industries and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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