| 19(1) | File No. 5-8411 |
| J.D. Jones | |
| (613) 957-2104 |
September 26, 1989
Dear Sirs:
Re: Gift by Will
This is in reply to your letter of July 13, 1989, wherein you requested our comments on questions you raised based upon the department's Interpretation Bulletin IT-226.
You have requested our opinion on the income tax treatment of charitable gifts and, specifically a testamentary gift of a residual interest to a registered charitable organization where the contribution cannot be paid by the individual's personal representative immediately following the individual's death. As an example of this type of gift you have mentioned the case of Halley Estate v. M.N.R., 63 DTC 1090 and 1359.
In our view, subsection 118.1(5) of the Income Tax Act (the "Act") may apply to a testamentary gift of a residual interest to a registered charitable organization. We note that in the case of Halley Estate v. M.N.R., 63 DTC 1090 and 1359, the court held that as the gift to the church was not absolute and the wife had powers of encroachment on the capital of the estate, it was not deductible under the Estate Tax Act. Accordingly, provided there is no encroachment power of the trust on behalf of a life tenant (in your example) the testator will be deemed, by virtue of subsection 118.1(5) of the Act, to have made a gift of the remainder interest in the trust to the registered charity in the taxation year in which he dies. To the extent that the relevant tax credit is not deducted in computing his tax payable for the year of death, the credit may be applied to reduce his tax payable in the immediately preceding taxation year pursuant to subsection 118.1(4) of the Act subject to the other limitations imposed by the Act. In addition,the Department would only consider a gift to have been made in the above circumstances where the fair market value of the gift is readily ascertainable as outlined in IT-226. In these circumstances, the charitable organization may issue a receipt for the gift of the residual interest showing the date of the gift as being the date of death even though the charitable organization will take possession of the gift only after the death of the life tenant, which will occur at a lesser date. The amount of the gift shown on the receipt must be based on the present value of the residual interest as calculated by a qualified valuator as of the date of death.
We trust our comments will be of assistance to you.
Yours truly,
for DirectorBusiness and General DivisionSpecialty Rulings DirectorateLegislative and IntergovernmentalAffairs Branch