13 January 1999 External T.I. E9822955 - SPOUSAL TESTAMENTARY TRUST - CHARITABLE GIFTS

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.

Principal Issues:

The terms of a testamentary spousal trust provide that, on the death of the spouse, the entire trust fund is to be paid to one or more registered charities. The trustees have discretion as to the choice of charities and the allocation of funds to any particular charity. Is the spousal trust entitled to claim a charitable donations tax credit when the amounts are actually paid to registered charities?

Position:

This is a factual determination to be made based on the terms of the particular will. If it is determined that the trust has in fact made a gift to a registered charity, it is our view that a charitable donations tax credit may be claimed by the trust to the extent provided by subsection 118.1(3).

Reasons:

Common-law definition of “gift” and previous opinions.

XXXXXXXXXX 							982295
J. Leigh

Attention: XXXXXXXXXX

January 13, 1999

Dear Sirs:

Re: Testamentary Spousal Trust - Charitable Donations

This is in reply to your facsimile letter dated September 2, 1998 wherein you requested our views with respect to the availability of the charitable donations tax credit when the assets of a testamentary spousal trust are distributed to a registered charity on the termination of the trust as a result of the spouse’s death.

In your letter, you described a situation where a testamentary spousal trust is created and the terms of the trust provide that, on the death of the spouse-beneficiary, the entire trust fund is to be paid to one or more registered charities. The amount to be allocated to each of those charities will be left to the discretion of the trustees of the spousal trust. The will might indicate the names of some charities that should be considered but would not attempt to control the trustees’ discretion as to the choice of charities or the allocation of funds to any particular charity.

The situation described in your letter appears to relate to an actual fact situation and written confirmation of the tax implications inherent in factual circumstances should be addressed to your local tax services office. We can, however, provide you with the following general comments.

Where a gift is made by a trust to a registered charity at the trustees’ discretion, we are of the opinion that any payment made by the trust to the registered charity would not qualify, pursuant to subsection 118.1(5) of the Income Tax Act (the “Act”), as having been made by the deceased in the year in which the deceased died. Subsection 118.1(5) of the Act can only apply where an individual by the individual’s will makes a gift to a qualified donee in subsection 118.1(1) of the Act. This would be the case where a specific gift is made to a qualified donee expressly in and by the terms of the will itself without any discretion by trustees (i.e., the qualified donee on reading the will can expect that a specific gift will be made to it). In the situation described, it is our view that the discretionary powers of the trustees would preclude subsection 118.1(5) of the Act from applying.

With regard to the question of whether the spousal testamentary trust would be entitled to claim a charitable donations tax credit, such a determination can only made with reference to the terms of the particular will. To qualify for the charitable donations tax credit, the donation must constitute a gift. The term “gift” is not defined in the Act and therefore assumes its common law meaning. In our view, a gift at common law is a voluntary transfer of property from a donor, who must freely dispose of his or her property to a donee who receives the property given. The transaction may not result directly or indirectly in a right, privilege, material benefit, or advantage to the donor or to a person designated by the donor. Any legal obligation on the donor would cause the donation to lose its status as a gift. Further, the donation must be made without conditions, from detached and disinterested generosity, out of affection, respect, charity or like impulses.

As noted above, while a review of the terms of the particular will would be required to determine whether the spousal testamentary trust has in fact made a gift to a qualified donee, it is our view that the trust may be considered to have made a gift in the circumstances described. If this is so, the trust would be entitled to claim a charitable donations tax credit under subsection 118.1(3) of the Act when the amounts are actually paid to the charities to the extent that they are supported by an official receipt containing prescribed information.

While we hope the foregoing comments are useful, they are given in accordance with the practice referred to in paragraph 22 of Information Circular 70-6R3 dated December 30, 1996 and are not binding on the Department in respect of any particular situation.

Yours truly,

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