CRA recently released a letter which discusses whether a gift of a share of the capital stock of a corporation to a public foundation to which subsection 118.1(5) applies after 2015, would qualify as an 'excepted gift' as defined in subsection 118.1(19) of the Income Tax Act.
CRA determined that in this situation the estate would be deemed not to deal at arm's length with the public foundation and consequently gifting a non-qualifying security (such as a share) would not qualify as an excepted gift.
CRA had the following comments:
Under the new tax legislation dealing with testamentary gifts, paragraph 118.1(5)(a) of the Income Tax Act (the “Act”) provides that for deaths occurring after 2015, where an individual by the individual’s will makes a gift, the gift is deemed to be made by the estate and not by any other taxpayer. Thus, in applying the rules in respect of gifting under the Act, the taxpayer that will be considered to have made the gift will be the deceased’s estate.
For the purposes of the Act, after 2015, an estate would typically be a personal trust (by virtue of the definition of a “personal trust” in subsection 248(1) of the Act). Under paragraph 251(1)(b), a personal trust is generally deemed not to deal at arm’s length with any person that is beneficially interested in the trust. Hence, in the given situation, assuming the Public Foundation is a beneficiary of the estate, it will be considered to be beneficially interested in the estate pursuant to subsection 248(25) of the Act. Accordingly, the estate will be deemed not to deal at arm’s length with the Public Foundation. Consequently, where the gift is a non-qualifying security (“NQS”), as defined in subsection 118.1(18), and specifically, where the NQS is a share, we agree with your conclusion that the gift will not qualify as an “excepted gift” under subsection 118.1(19) of the Act.
Here is a copy of the CRA letter.
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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.