30 January 1998 Internal T.I. 9727787 - CHARITABLE DONATIONS BY WILL

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.

		January 30, 1998

	Calgary Tax Services Office	Trusts Section
	Business Audit
J. Barry Rooke, Manager	L. Holloway
		957-2104
	Attention: Tony Wong
			972778

Charitable Donations by Will

Further to our informal response to you by telephone during the week ending October 24, 1997 this is in reply to your request for our opinion on October 16, 1997 in respect of the proposal made to your office by the deceased taxpayer's representative, XXXXXXXXXX, in his letter dated October 8, 1997. This letter will confirm our verbal opinion for your records.

Statement of Facts

XXXXXXXXXX

XXXXXXXXXX

Opinion Requested

You requested our views on the representative's proposal or alternative solutions to the above dilemma.

Our Comments

Subsection 118.1(5) deems gifts made by an individual by will to have been made in the year of the individual's death, hence allowing the donation to be claimed on the final return even though the transfer is made after death by the deceased's representatives.

If the deceased's will had provided sufficient discretion for the executors to decide on whether or not to make a donation there could have been an argument that the estate was entitled to the donation credit. Page 46 of the 1996 T3 Guide provides the following statement:

If the will provides that a donation can be made at the discretion of the trustee, you can choose to treat the charity as an income beneficiary and deduct the amount on line 47 of the T3 return, or claim a non-refundable tax credit on line 1112 of Schedule 11.

Lloyd Raphael in his book entitled Canadian Income Taxation of Trusts makes the following statement on page 543:

A trustee may have power in or under its terms to make gifts to registered charities and to the Crown within subsection 118.1(3), with or without limitation on the amount to be given or on the source (income or capital) from which the amount is given. The trust would be entitled to deduct the amount or value of the gift to the extent allowed thereunder in computing its Part I tax otherwise payable for the taxation year in which the gift was made, except where subsection 118.1(5) applies.

However, the estate of a deceased taxpayer is a taxpayer separate and distinct from the deceased and, accordingly, could only claim a donation when it is in fact the donor. Although we have not seen the will, based on the representative's description, it is subsection 118.1(5) which is applicable.

In our opinion the proposal made by the representative has no basis in law. As the mandate of our Directorate is to provide rulings and interpretations on existing legislation we cannot agree with the proposal as it is not supportable by any existing legislation. Under subsection 70(2), where a taxpayer had at the date of death, rights or things which are not the subject of a separate election under that subsection (or transferred to the beneficiaries under subsection 70(3)), the value of the right or thing is to be included in the taxpayer's income for the year in which he or she died. Paragraph 12 of IT-212R3 states that where a dividend is declared but not paid prior to the death of a taxpayer, it is a right or a thing if the ex-dividend date or the date of record was prior to the date of death. As the dividends in question have been described as arising after death during efforts by the executors to fund the specific bequests, it is clear that these dividends do not belong in the final T1 of the deceased and could not be the subject of a separate election under subsection 70(2).

A one-year carry back is available with respect to testamentary gifts by virtue of subsection 118.1(4) to the extent that a tax credit in respect of the amount of the gift is not actually deducted in the terminal year.

A/Chief
Trusts Section
Resources, Partnerships and Trusts Division
Income Tax Rulings and Interpretations Directorate
Policy and Legislation Branch