8 November 1995 External T.I. 9522985 - BEQUESTS - SHOULD RECEIPTS BE ISSUED?

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.

RULINGS DIRECTORATE
CORRESPONDENCE SUMMARY

Principal Issues:

(1)Whether a registered charity should issue a receipt with respect to a gift, by will, of a residual interest in an estate or a specific bequest.

(2)Whether the gift/donation would be claimed in the return of the deceased individual or that of the estate.

Position TAKEN:

(1)A receipt is required in both cases.

(2)Factual determination which depends upon whether the gift is actually made by the deceased individual or the estate. Where the gift is made directly by the individual through his will the donation is claimed in the deceased individual's final tax return and may, to the extent not deducted in that year, may be claimed in the year immediately preceding the year of death.

Reasons FOR POSITION TAKEN:

(1)Subsections 118.1(2) & (6)

(2)Subsections 118.1(4) & (5)

		952298
XXXXXXXXXX				G. Donell

Attention: XXXXXXXXXX

November 8, 1995

Dear Sir:

Re: Subsection 118.1(5)

This is in reply to your letter of August 30, 1995 in which you have requested our opinion on the application of subsection 118.1(5) of the Income Tax Act (the "Act") in a particular situation. In particular you have outlined a hypothetical situation where an individual on his or her death has made a gift, by will, of the residual value of his or her estate to a Canadian registered charity. In such a situation you have asked us whether the intended charity is required to issue a tax receipt and whether the claim for the gift is to be made in the income tax return for the taxation year in which the individual died (the "terminal year") or in the income tax return of the estate. Furthermore you have asked us whether the answer to these questions would be different if the donation was a specific bequest.

The Department's position with respect to gifts of equitable interests in trusts made to charitable organizations is found in Interpretation Bulletin IT-226R entitled "Gift to a charity of a residual interest in real property or an equitable interest in a trust".

A gift is generally defined as a voluntary transfer of property without valuable consideration between a person making the gift acting in the capacity of a donor and an existing donee with the capacity to receive it. Property as defined in subsection 248(1) of the Act, specifically paragraph (a) thereof includes "...a right of any kind whatever,...", and accordingly would include a right to the residue of an estate as well as a specific bequest. The gift, for the purposes of determining the charitable donation tax credit pursuant to subsection 118.1(3) of the Act, must vest with a charitable or other organization described in subsection 118.1(1) of the Act (a "charity"). A gift vests if the charity's interest is ascertainable and there are no conditions attached to it; the transfer must not be revocable and it must be clear that the charity will eventually take possession of and have full ownership of the property.

Subsection 118.1(5) establishes the timing of a gift made by an individual's will (a "testamentary gift") to a charity by deeming it to have been made in the terminal year. A one-year carry back is provided with respect to testamentary gifts by subsection 118.1(4) of the Act to the extent that the tax credit is not actually deducted in the terminal year. Subsection 118.1(2) stipulates that those gifts not supported by receipts containing information prescribed by Part XXXV of the Income Tax Regulations are to be excluded. Accordingly a tax credit may only be claimed under these provisions if the individual is, in fact, the donor and if the donations are properly supported by the required receipts. The estate of the individual is a taxpayer separate from the deceased and accordingly would only be permitted to claim properly-receipted gifts in it's income tax return if it is the donor. The determination of the donor is a question of fact that can only be ascertained from the specific circumstances including the terms of the will.

In our view once it has been established that an individual has made a gift of the residue of an estate to a charity subsection 118.1(5) of the Act may apply. The Department however would only consider a gift to have been made where the fair market value of the gift is, as indicated above, readily ascertainable. In these circumstances, the charitable organization may issue a receipt for the gift of the residue showing the date of the gift as being the date of death even though the charity will only take possession of the gift at a later date. The amount of the gift shown on the receipt must be based on the present value of the residue as calculated by a qualified valuator as of the date of death.

We trust that the above comments are of assistance to you.

Yours truly,

Chief
Financial Institutions Section
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy & Legislation Branch