Principal Issues: Whether paragraph 118.1(5.1)(b) is applicable in a situation where a deceased individual's will establishes a testamentary trust and the equitable interest in the trust is gifted to a qualified donee?
Position: No.
Reasons: The subject of the gift is the equitable interest in the testamentary trust and has not been acquired by the estate on and as consequence of the death of the deceased taxpayer.
XXXXXXXXXX 2016-062584 Lucie Allaire, LL.B CPA, CGA, D.Fisc. April 19, 2017
Dear Madam,
Re: Donation of an interest in a trust created by a will
This letter is in response to your e-mail of January 8, 2016 in which you inquired as to whether the donation of a capital interest, in a charitable residual trust created by a will, to a qualified donee (footnote 1) is still eligible for the donation tax credit and whether subsection 118.1(5.1) of the Income Tax Act (the "Act") will apply to the donation.
In this regard, you indicated that the gift of the capital interest in the trust complies with the terms of Interpretation Bulletin I T226R - ARCHIVED - Gift to a charity of a residual interest in real property or an equitable interest in a trust. In addition, you indicated that the estate that began to exist on the individual's death is a graduated rate estate as defined in subsection 248(1) (a "GRE").
Unless otherwise indicated, all legislative references are to the provisions of the Act.
Our Comments
This technical interpretation provides general comments on the provisions of the Act and related legislation, where referenced. It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R7, Advance Income Tax Rulings and Technical Interpretations.
Paragraph 118.1(4.1)(a) provides that subsection 118.1(5) applies to a gift made by the individual by will if an estate arises on and as a consequence of the death after 2015 of an individual. Subsection 118.1(5) provides that the gift is deemed to be made by the individual's estate generally at the time that the property that is the subject of the gift is transferred to the donee and not at any other time.
Subparagraphs 118.1(1)(c)(i) and (ii) of the definition of "total charitable gifts" (the "Definition") set out certain requirements for an eligible amount of a gift to be included in the total of charitable donations from an individual other than a trust or from an individual who is a trust.
In order for the eligible amount of a gift to be included in the deceased's total charitable donations, one of the requirements of clause (c)(i)(C) of the Definition is that subsection 118.1(5.1) applies to the gift made by the individual's estate. Similarly, in order for the eligible amount of a gift to be included in the total of the charitable gifts of the estate, clause (c)(ii)(B) of the Definition requires, inter alia, that subsection 118.1(5.1) applies to the gift made by the individual's estate.
Subsection 118.1(5.1) applies in particular to a gift made by a GRE of an individual whose death occurs after 2015 if the subject of the gift is property that was acquired by the estate on and as a consequence of the death or is property that was substituted for that property.
In the situation described, we are of the view that the subject of the gift is the capital interest in the trust and that such capital interest in the trust cannot have been acquired by the GRE at the time of the individual's death or as a consequence of the death. Therefore, subsection 118.1(5.1) does not apply.
However, under (c)(ii)(A) of the Definition, the eligible amount of a gift of an interest in a trust could be included in the computation of the total charitable gifts of the GRE in the taxation year in which the gift is made or in any of the five subsequent taxation years.
We hope that our comments will be of assistance.
Louise J. Roy, CPA, CGA
Manager
Financial Industries and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
FOOTNOTES
Due to our system requirements, footnotes contained in the original document are reproduced below:
1 For the purposes of subsection 248(1) of the Act.