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Here is a CRA letter which discusses the dates and value to be used on official donation receipts for a bequest under will.
Here is the CRA letter:
“PRINCIPAL ISSUES: Clarification regarding the dates and value to be used on official donation receipts for gifts by will.
POSITION: General comments provided.
REASONS: Previous opinions issued.
June 14, 2012
Re: Subsection 118.1(5) – Gift by Will
We are writing in response to your email dated December 5, 2011, wherein you pose several questions concerning the application of subsection 118.1(5) of the Income Tax Act (the “Act”). Specifically, you ask for confirmation that the only date that can be used as the date of the gift and for determining the fair market value (“FMV”) of a gift by will is the date of the individual’s death.
Further, you describe a hypothetical situation wherein an individual dies and leaves a bequest provision for a specific percentage of the residue of the individual’s estate to be donated to a Canadian registered charity. However, the charity does not receive the donated property until two years after the individual’s death. Between the time of death and the time the property is delivered to the charity, the value of the property decreases. In such circumstances, you ask what the date of the gift is, what the issue date of the receipt is, what the correct method of fulfilling the deceased’s bequest is, and whether there are any other special considerations that the charity must consider when completing the official donation receipt for the gift by will.
Your last question concerns a gift by will of privately held securities. Where, pursuant to an estate freeze agreement, the redemption value is stated to be the FMV of the shares and the shares are redeemed immediately following a gift of the shares to a qualified donee, you ask whether reliance can be placed on the estate freeze agreement as a reasonable basis for a FMV assessment of the gift.
Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. We are, however, prepared to offer the following general comments, which may be of assistance.
Generally, subsection 118.1(5) of the Act provides that where an individual, by the individual’s will makes a gift, for the purpose of section 118.1 of the Act, the gift is deemed to have been made by the individual immediately before the individual died. For the purposes of this subsection, a gift is considered to have been made “by the individual’s will” where the executor of the estate is required to transfer a specific property or amount to a recipient that is a qualified donee. An amount is certain, in this regard, if there is no discretion given to the executor as to whether the gift can be made or as to the amount of the gift (e.g., a specific bequest, a gift of residue, or a specified portion of the residue can be a gift by will). A gift, the occurrence or quantum of which is subject to the discretion of an executor, is not a gift by will.
Under the proposed split-receipting legislation, it is the eligible amount of a gift as determined under proposed subsection 248(31) of the Act that is used in determining the charitable donations tax credit under subsection 118.1(3) of the Act. Generally, the eligible amount of a gift is the amount by which the FMV of the property that is the subject of the gift exceeds the amount of the advantage, if any, in respect of the gift. While subsection 118.1(5) of the Act establishes the timing of the gift, it does not expressly establish the value of the gift. In our view, it is reasonable to interpret subsection 118.1(5) of the Act such that the value that is to be used to determine the eligible amount of the gift is the FMV of the transferred property immediately before the individual’s death. The date of issue of the official donation receipt would be the actual date on which the receipt was prepared by the qualified donee.
The completion of a gift should occur within a reasonable time period after the date of death. If the gift to the qualified donee is not completed until after the assessment of the deceased’s final T1 return, a request to adjust the tax return, subject to the time limitations in the Act for reassessments, should be sent to the appropriate tax centre along with the official donation receipt. As indicated in Rulings document E2010-0363131C6 and Guide T4011, Preparing Returns for Deceased Persons 2011, for gifts that will be received later, the CRA is prepared to accept as support a copy of the will, a letter from the estate to the registered charity or other qualified donee that will receive the gift advising of the gift and its value, and a letter from the qualified donee stating that it will accept the gift. Please note that this administrative practice is based on the understanding that an official donation receipt will be provided by the qualified donee when the property is received by the qualified donee.
With regard to your question on the correct method of fulfilling the deceased’s bequest in the situation described, a review of the specific terms of the deceased’s will is required. We have noted in the past that the fact that the terms of the will permit the executor to distribute the residue in cash or in specie would not necessarily preclude the gift from qualifying as a gift by will as long as the actions taken by executor are reasonable and in accordance with the terms of the will.
Finally, we note that it is the responsibility of the charity to support that the amount reported on the donation receipt reflects the FMV of the property donated. The determination of FMV is a question of fact. As a matter of practice, the Income Tax Rulings Directorate does not review nor provide advice with respect to the determination of FMV of a particular property at any particular point in time. Specific questions concerning valuation for tax purposes should be directed to the valuation section of the appropriate Tax Services Office.
While we hope that our comments will be of assistance to you, they are given in accordance with the practice referred to in paragraph 22 of IC 70-6R5 and are not binding on the CRA in respect of any particular situation.
for Division Director
Financial Industries Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch”
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Mark Blumberg is a partner at the law firm of Blumberg Segal LLP in Toronto and works almost exclusively in the areas of non-profit and charity law.