December 15, 2019
Death, Donations & the Charitable Donation Tax Credit
Those with benevolent intentions can make donations during their lifetime, and/or upon their deaths. For the latter, attention should be paid to the documentation of Wills or trust deeds, to ensure that the charitable donation tax credit (“DTC”) is available.
Prior to 2016, the ability to claim a charitable donation tax credit on death created much confusion for taxpayers wanting to make charitable donations in their wills.
Even though the estate was essentially the donor when directed by a Will, the Will was required to restrict executors’ discretion in order to claim the DTC in the deceased’s final personal tax return (“T1 Return”) or the prior year T1 Return.
Conversely, the Will had to allow discretion if the estate wanted to claim the DTC in its trust tax return (“T3 Return”), so that the gift qualified as a donation and the charity was not seen as a beneficiary receiving a distribution from the trust.
New charitable donation tax credit guidelines effective January 1, 2016, have greatly simplified these rules and provided more flexibility. If a donation is provided for in a Will, designated in an RRSP, RRIF, TFSA or life insurance policy, or made by an estate, it is considered a donation at the time the gift is made.
Donations Made by Estates
If the donation is made by a Graduated Rate Estate (“GRE”)1 within 36 months of death, the GRE donation can be claimed as a DTC in the following:
The deceased’s final T1 Return, or in the prior year, or
The GRE’s T3 Return in the year of the donation, in prior years, or the following 5 years.
If a Graduated Rate Estate makes a donation after 36 months but before 60 months from the individual’s death, the DTC can be claimed by the estate in the year of the donation or in the following 5 years, but not in the prior years when it was a GRE.
Donations Made by Trusts
The simplicity provided to GRE donations is not available for donations made by a trust including:
A testamentary trust provided for in a Will
A family trust, or
A life interest trust (i.e. spousal, alter ego, or joint partner trust)
Even though there are fewer restrictions now, documentation should still be reviewed to ensure that the charitable donation tax credit will be available to trusts. Specifically, trustees must have the discretionary power under the terms of the Will or Trust Deed to make gifts.
Individuals with benevolent intentions and their executors or trustees will appreciate the clarity provided when gifting to charity on death. We recommend a review of the terms of any trusts created, either in your Will or during your lifetime, to ensure the charitable donation tax credit is available and maximized.
Refer to this article for more details on changes to the donation rules in 2016.
1A GRE is the defined term in the Income Tax Act but in general, is an estate that arose as a consequence of death and less than 36 months have since passed. The estate must be designated by the executors as a GRE on its first T3 Return, and only one GRE is permitted for each individual.
Please contact our Manning Elliott Tax Team for assistance if you still have questions about how to claim a charitable donation tax credit.
This content is believed to be accurate as of the date of posting. Tax laws are complex and are subject to frequent change. Professional advice should be sought before implementing any tax planning. Manning Elliott LLP cannot accept any liability for the tax consequences that may result from acting based on the information contained therein.