An alter ego trust realizes a taxable capital gain under s. 104(4) on a portfolio of listed shares on the death of the settlor (which generated a deemed year end under s. 104(13.4).).
a) Assume that the residual beneficiary is a registered charity. Can a distribution made to that charity be claimed as a charitable gift?
b) Assume instead that the residual beneficiaries are a class of registered charities as determined by the trustees, the trustees make payments over the next 3 years to various of those charities, and at the end of the 3 years, the remaining capital is to be distributed to registered charities. Can a charitable donation be claimed by the alter ego trust?
(a) After quoting Friedberg (“a gift is a voluntary transfer of property owned by a donor to a donee, in return for which no benefit or consideration flows to the donor,”), CRA indicated that where, as appeared to be the case here, the trust has no discretion as to whether to make the payment to the charity, the payment does not qualify as a gift and thus, is ineligible for the donation tax credit. However, CRA has accepted that where the trustee is clearly given the discretion to decide if the payment is to be made to a charity or to use the funds in some other manner, the payment is considered voluntary and, thus, can qualify as a gift.
(b) Here, in contrast, the fact that the trustee may make payments over the three years suggests that the trustee may have discretion and the payments may be voluntary – so that the payments to the charity over the three years may be eligible for the donation tax credit. However, if there is no discretion as to the distribution of the remaining capital on the third anniversary, such payment would not qualify as a gift.