Following the death of the deceased in 2016, the executors of his estate (a graduated rate estate) make a discretionary donation of mutual fund units (whose adjusted cost base had been stepped-up under s. 70(5)) to a registered charity, would s. 38(a.1)(ii) apply, so that the 50% inclusion rate in the 2016 final return would, through an amendment of the return, be reduced to 0%? CRA responded:
Subparagraph 38(a.1)(ii) provides for a nil taxable capital gain if a disposition is deemed by section 70 to have occurred and the property is:
- a security described in subparagraph 38(a.1)(i), and
- the subject of a gift to which subsection 118.1(5.1) applies and that is made by the individual's GRE to a qualified donee.
We agree [that the] gain on the mutual fund units would be calculated at the time of death, however the inclusion rate would be recalculated to be zero as per subparagraph 38(a.1)(ii).
… [T]he taxable capital gain in respect of any subsequent increase in value of the mutual fund units from the date of death to the date of disposition by the GRE to the qualified donee will also be equal to zero pursuant to subparagraph 38(a.1)(i).