Revenue Canada Taxation Head Office
XXX
A.B. Adler (613) 957-8962
Attention: XXXX
October 16, 1989
Dear Sirs:
This is in reply to your letter dated August 16, 1989 in which you requested our views concerning the application of subsections 118.1(5), 118.1(6) and 104(4) of the Income Tax Act ("Act") to the following hypothetical situation.
1. A and B are husband and wife. The Last Will and Testament of A is to provide B with a life interest in A's estate. B will be entitled to all of the annual net income of A's estate until her death. There will be no power to encroach on capital for B or any other person.
2. Upon the death of the survivor of A and B, the residue of the estate will be transferred to a registered charity.
In our view A will be deemed under subsection 118.1(5) of the Act to have made a gift of the residue of the estate to the registered charity in the taxation year in which he dies. Further, his legal representative will be eligible to make the designation provided for under subsection 118.1(6) of the Act in A's final return of income. The proceeds of disposition of capital property and the amount of the gift may, under subsection 118.1(6), be equal to the adjusted cost base of the capital property provided that its fair market value exceeds its adjusted cost base on the date of A's death.
On the death of B, the actual transfer of the property to the registered charity will be considered as a distribution of property to a beneficiary in satisfaction of his capital interest and will be subject to the rules contained in section 107 of the Act.
We trust that the above comments will be of assistance to you.
Yours truly,
for Director Financial Industries Division Rulings Directorate