The proposed rules provide, for deaths on or after January 1, 2016, where a gift is made by a Will, by a direct designation (under a life insurance policy, RRSP, RRIF or TFSA) or by the estate, the gift is deemed to be made by the estate (and no other taxpayer) at the time the property is transferred to the charity (and at no other time). This establishes for all estates (whether the estate is the graduated rate estate (“GRE”) or not) who is seen to have given the gift and the timing of that gift. (For more discussion of what is the GRE see September 2014 AAMOT “Tax Changes for Testamentary trusts – More than just the elimination of graduated rates”.)
The new, flexible rules for claiming estate gifts are contained in modifications to the definitions of “total charitable gifts” and similar definitions for “total cultural gifts” and “total ecological gifts”. Basically, the executor of a GRE will have the flexibility to allocate the donation among any of:
- the taxation year of the estate in which the donation is made;
- an earlier taxation year of the estate; or
- the last two taxation years of the deceased individual.
An important aspect to note is that to be eligible for the new flexibility, the gift must be one that is either a direct designation or physically made by the GRE in the 36 month timeframe after death. This may be problematic for contentious or complex estates. Also, due to the requirement that a GRE be a testamentary trust, a GRE may lose its classification if the trust receives a contribution from someone other than the individual on death.
An interesting aspect of the rule dealing with GRE gifts is that it does not distinguish between a gift by Will and a gift made by the estate, merely requiring the subject of the gift to be property (or substituted property) that was acquired by the estate on and in consequence of the relevant death. What this means is that for gifts by a GRE it is not important that the gift necessarily be made by Will (i.e. no discretion is given to the trustee). It could be an estate gift (i.e. discretion is given to the trustee to make a gift). Also, the flexibility appears to expand beyond the GRE and the individual to allow the normal estate rule (claim permitted in year of gift by the estate with a five year carry forward (ten years for ecological gifts)) to also be used. As a result, it is now no longer that important to draft Wills to ensure that a gift be considered a gift by will.
Similarly, for a gift by a non-GRE estate, there appears to be no distinction between a gift by Will, or an estate gift. Both would be deemed to have been made by the estate at the time of the gift and permitted a claim in the year and the five (or ten) following taxation years of the estate. As noted above though, a non-GRE estate could not access the new flexibility.
It should also be noted that the new flexibility would not apply on the death of the second spouse if there is a gift contemplated in the Will that settled a qualifying spousal testamentary trust. Similarly, this flexibility does not extend to the death of the settlor/partner under an alter-ego or joint partner trust. For these trusts, again it would be the normal trust/estate rule (claimed in the year of the gift with a five (or ten) year carry forward).
There are two other measures in the draft legislation related to charitable giving of note. First, the long-standing administrative practice of the CRA to allow an individual to claim a donation tax credit for gifts made by their spouse has been codified. Second, for gifts of publicly listed securities, ecological or cultural property a nil capital gains inclusion rate is only allowed if the gift is made by the GRE. Again, this limitation could be relevant in situations involving multiple Wills.
In general, these rules are good news and the draft legislation has in some ways expanded what we thought we were going to get from Budget 2014.
(Reprinted from Manulife Repsource)