Gifts by Will – Section 118.1(5)

May 1, 2010 | Gail P. Black, KC

On October 7, 2009, Canada Revenue Agency (“CRA”) issued a technical interpretation on:

“Whether a gift by will may be claimed in a particular situation, where an individual died and the individual’s will instructed that the residue of the estate be held in trust, with net income to be paid to registered charities.”

The Income Tax Act (the “Act”) provides that a charitable gift made by an individual’s will is deemed to be a gift made by the individual immediately before the individual died.  Charitable donation tax credits can therefore be applied against income in the deceased’s final tax return and in the previous year (if a surplus of credits is available). 

In more recent times, CRA has been quite generous in its application of this deeming provision.  However, in this instance, CRA’s interpretation was that this provision would not apply as the value of the donation could not be reasonably determined.  CRA was troubled that the will was silent as to the capital beneficiary of the testamentary trust.  CRA concluded that no deduction or tax credit would be allowed in the deceased’s final tax return where the size of a residual or equitable interest at the time of its donation could not reasonably be determined. 

Under trust law, an eventual capital beneficiary of a charitable trust is not required.  A charitable trust (established exclusively for charitable purposes) can continue in perpetuity.  It is ironic that, where an individual establishes by his or her will a trust which provides exclusively for charity in perpetuity, such a gift could be considered not to constitute a charitable “gift by will”.

A potential solution is for the executors of such a will to make an application to the CRA Charities Directorate for “registered charity” status for the testamentary trust.  Administratively, CRA has indicated that a gift to a private foundation to be established by the executors after death will qualify as a “gift by will”.  Once registration took place, the executors would then be in a position to make the donation of a quantifiable amount to a registered charity and the gift should be effective at the time of death. 


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