The condition in s. (c)(ii)(B) of the “total charitable gifts” definition that the trust be a graduated rate estate (GRE) must be tested in the given year, i.e., that in which the gift is claimed rather than that of the gift. Accordingly, a deduction can be made during years 1, 2 or 3 of a GRE for gifts made in years 4 and 5 of an estate which would be a GRE but for the passage of 36 months.
(a) Does CRA agree that nothing in the Act prevents the test of a trust being a GRE for such purposes being applied in the year of deduction of the gift?
(b) If this is not the case, does this mean that the gift made in year 4 or 5 by an estate which would have been a GRE but for the passage of 36 months cannot benefit from the deduction in years 1, 2 or 3 of the GRE?
In responding negatively to Q.(a), CRA stated:
For the purposes of clause (c)(ii)(B) of this definition, the trust must be a GRE at the time the gift is made, not in the year the gift is deducted in computing the tax payable.
In confirming the proposition in Q.(b), CRA referenced s. 118.1(5.1), and then stated:
Assuming that all conditions in the definition of "total charitable gifts" in proposed subsection 118.1(1) are satisfied, a gift made by a former GRE more than 36 months after the individual's death, but within 60 months after the death, can be claimed in the following years:
- the taxation year of the individual's death [citing s. (c)(i)(C) of the “total charitable gifts definition”],
- the taxation year preceding that of the individual's death [citing s. (c)(i)(C)],
- the taxation year of the estate in which it made the gift [citing s. (c)(ii)(A)],
- one of the five taxation years of the estate following that in which the gift was made [citing s. (c)(ii)(A).
However, the eligible amount of a gift cannot be included in the "total charitable gifts" of an estate for a preceding taxation year of the estate, namely, for years 1, 2 and 3 in your example.