A recent enquiry made to the Canada Revenue Agency (CRA) involved two questions with respect to the timing and amount of a charitable gift made in an individual’s will:
1. How do you claim a gift made by will if the gift is not received by the charity by the due date for filing the deceased’s terminal return?
2. How do you value the gift if the property changes in value between the date of death and the time the property is transferred to the charity?
When a donation is made by will, it is considered to be a donation made immediately before the time of death and, as such, a gift made by the deceased that can be claimed on the terminal tax return. A gift on the terminal tax return generates a tax credit, but only to a maximum of 100 per cent of net income reported on that return. Any gift in excess of this limit can be carried back one year and claimed on the prior tax return, again subject to a limit of 100 per cent of net income. However, from a practical point of view, such a gift may take some time to complete as the executor undertakes to complete an inventory of estate assets and obtain probate of the will.
For gifts completed before the terminal tax return is filed, the executor would include the official receipt from the named charity. For gifts that cannot be completed before the terminal tax return is filed, the CRA has indicated that the executor should claim the appropriate amount in the terminal return and provide a copy of the will, a letter from the estate to the charity advising of the gift, and a letter from the charity acknowledging the gift and its intention to accept the gift to document the gift.
In respect of the second question, the CRA responded that the value of the gift is to be determined at the date of death. Consider the example of an individual who bequeaths 1,000 shares of Public Co in his will to his favourite charity. Although at the time of his death the shares may be worth $50 each, their value may be higher or lower at the time of physical transfer to the charity. The value of the gift will be $50,000 irrespective of the actual value at the time of transfer. This is very important because values will often change between the date of death and the time of transfer.
It should be noted that where the value of the gift cannot be reasonably determined, no charitable gift tax credit will be allowed. This may arise, for example, in situations where the estate may not have sufficient financial resources to pay its liabilities, leaving insufficient assets for specific bequests.
(This article was reprinted with permission from The Institute for Financial Education “Comment”, November – December 2010)