Principal Issues: 1) For the application of clause (c)(ii)(B) of the definition "total charitable gifts" in subsection 118.1(1), does an estate need to qualify as a GRE in the taxation year in which the gift is made or in the taxation year in which the eligible amount of the gift is deducted in computing the individual’s tax payable?
2) Based on proposed legislation released by the Department of Finance on January 15, 2016, can a former GRE that makes a gift more than 36 months after the death of an individual, but within 60 months after the individual’s death, claim the gift in the first three taxation years of the estate?
Position: 1) In the taxation year in which the gift is made.
2) No.
Reasons: 1) Based on the wording of clause (c)(ii)(B) of the definition of "total charitable gifts" in subsection 118.1(1), the particular year is the year in which the gift is made.
2) A gift made by an estate that is not a GRE is only available to the estate in the taxation year in which the gift is made or in any of the next five taxation years from the year in which the gift is made (clause 118.1(1)(ii)(A)).
TAXATION OF FINANCIAL STRATEGIES AND INSTRUMENTS ROUNDTABLE, OCTOBER 7, 2016
2016 APFF CONFERENCE
Question 8
Definition of "total charitable gifts" in light of the legislative proposals of January 15, 2016
On January 15, 2016, the Department of Finance released legislative proposals (footnote 1) (the "Legislative Proposals") to reflect the new rules for charitable gifts at death, which will affect the definition of "total charitable gifts” under subsection 118.1(1).
118.1 (1) Definitions
"Total charitable gifts", of an individual for a particular taxation year, means the total of all amounts each of which is the eligible amount — to the extent it is not otherwise included in determining an amount that is deducted under this section in computing any individual’s tax payable under this Part for any taxation year — of a gift (other than a gift any part of the eligible amount of which is included in the total cultural gifts or the total ecological gifts of any individual for any taxation year) that is made
(a) to a qualified donee,
(b) in a taxation year that is not a year for which an amount is deducted under subsection 110(2) in computing the individual’s taxable income, and
(c) if the individual is
- (i) not a trust,
Amendments proposed by the Legislative Proposals to permit a deduction by the deceased:
(C) by the individual’s estate if subsection (5.1) applies to the gift and the particular year is the taxation year in which the individual dies or the preceding taxation year, or
Provision permitting a deduction by the estate:
(ii) a trust
(A) by the trust in the particular year or any of the five preceding taxation years, or
(B) by the trust if (I) the trust is an individual's estate, (II) subsection (5.1) applies to the gift and (III) the particular year is a taxation year 1 in which the estate is the individual's graduated rate estate, and 2 that precedes the taxation year in which the gift is made;
The definition of trust in subsection 248 (1) includes an estate.
In clause (c)(ii)(B) of the definition "total charitable gifts" in subsection 118.1(1), the condition that the trust be a graduated rate estate ("GRE") refers to the trust referenced under subparagraph (c)(ii) and must be tested for the particular year when the relevant paragraph is analyzed, which is the year of the deduction in computing the tax payable, not the year in which the gift is made.
Where applicable, the deduction in year one, two or three of a GRE would be possible for gifts made in years four and five of an estate that would have been a GRE, had it not been for the 36 months having passed, and if the conditions of subsection 118.1(5.1) are respected.
Questions to the CRA
(a) Can you confirm that nothing in the Income Tax Act prevents the test of a trust being a GRE for the purposes under clause (c)(ii)(B) of the definition of "total charitable gifts" in subsection 118.1(1) being applied during the year in which the gift is deducted in computing the tax payable?
(b) If this is not the case, does this mean that the gift made in year four or five by an estate which would have been a GRE but for the passage of 36 months cannot benefit from deduction in years one, two or three of the GRE?
CRA response to Q.8(a)
The CRA cannot confirm your interpretation of the rules in clause (c)(ii)(B) of the definition of "total charitable gifts" in subsection 118.1(1). 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.
CRA response to Q.8(b)
In order for the eligible amount of a gift to be included in the "total charitable gifts" under proposed clause (c)(i)(C) or clause (c)(ii)(B) of the definition under subsection 118.1(1), it is necessary inter alia that subsection 118.1(5.1) apply to the gift.
Proposed subsection 118.1(5.1) applies to a gift following the death of a taxpayer by at most 60 months and that is made by a GRE or estate that would have been a GRE but for paragraph (a) of the definition of GRE in subsection 248(1) (a "Former GRE"). In addition, paragraph 118.1(5.1)(a) or (b) must apply.
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,20
- the taxation year preceding that of the individual's death,21
- the taxation year of the estate in which it made the gift,22
- one of the five taxation years of the estate following that in which the gift was made.23
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.
Catherine Ayotte
(613) 670-8897
October 7, 2016
2016-065173
FOOTNOTES
Due to our system requirements, the footnotes contained in the original document are reproduced below:
1 CANADA, Department of Finance, Legislative Proposals Relating to Income Taxation of Certain Trusts and Estates, January 15, 2016.
2 Clause (c)(i)(C) of the definition of "total charitable gifts" in proposed subsection 118.1(1).
3 Clause (c)(i)(C) of the definition of "total charitable gifts" in proposed subsection 118.1(1).
4 Clause (c)(ii)(A) of the definition of "total charitable gifts" in subsection 118.1(1).
5 Clause (c)(ii)(A) of the definition of "total charitable gifts" in subsection 118.1(1).