28 May 1999 External T.I. 9813195 - DEDUCTIBILITY IF TRUSTEE HAS FULL DISCRETION

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:

Whether a gift to a registered charity by a testamentary trust where the trustee has full discretion as to which, if any, assets are to be distributed to a charity can qualify under subsection 118.1(5) of the Act.

Position TAKEN:

No.

Reasons FOR POSITION TAKEN:

In the absence of each qualified donee being named in the will along with the amount such donee is to receive, it is our general view that the gift will not be considered to have been made by an individual in the individual’s will.

XXXXXXXXXX 5-981319
P. Diguer
May 28, 1999

Dear Sir/Madam:

Re: Gifts by will - subsection 118.1(5) of the Income Tax Act (Canada)

This is in reply to your letter dated May 20, 1998, in which you requested our views with respect to a situation where an individual in his will provides that his executors have the discretion to distribute some or all the assets to a number of beneficiaries including a registered charity. You ask that we assume that the executor would have total discretion as to which of the individual’s assets, if any, would be distributed to a particular beneficiary.

At issue is whether the individual by his will makes a gift to which subsection 118.1(5) of the Income Tax Act (Canada) (the “Act”) will apply.

Moreover, you also seek our views on the application of subsection 118.1(5) with respect to a second situation, similar to the one set out above, but where the executor is determined to distribute assets to a registered charity within a relatively short period of time such as within the first taxation year of the testamentary trust.

Our comments

Written confirmation of the tax implications inherent in particular transactions are given by this Directorate only where the transactions are proposed and are the subject matter of an advance ruling request submitted in the manner set out in Information Circular IC-70-6R3 dated December 30, 1996. This Directorate also provides technical interpretations of the various provisions of the of the Act but we do not provide tax planning advice. Nevertheless, we offer the following general comments in connection with your request which we hope is of assistance to you.

Subsection 118.1(5) of the Act applies where an individual by his or her will makes a gift to a qualified donee described in 118.1(1) of the Act. Generally, a specific gift must be 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 terms of the will can expect that a specific gift (a specific bequest or a specific device) will be made to it. In the absence of each qualified donee being named in the will along with the amount such donee is to receive, it is our general view that the gift will not be considered to have been made by an individual in the individual’s will.

We trust our comments will be of assistance to you.

Yours truly,

for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch