On August 29th, the Department of Finance released draft legislation to implement changes proposed
in the 2014 Budget with respect to charitable bequests. Other
changes proposed in the 2014 Budget were introduced in legislation
released earlier this year.
Under the current rules, there are three categories of gifts
that can be made upon an individual's death:
(a) GiftbyWill – this occurs where an individual
directs his or her estate trustees to make a specific charitable
gift, with only limited discretion provided to the estate trustees
in respect of the gift;
(b) GiftbyEstate – this occurs where a gift is
made at the discretion of the estate trustees; and
(c) Gift by
DirectDesignation – this occurs where an
individual designates a qualified donee as the beneficiary of
proceeds upon death under an RRSP, RRIF, TFSA or life insurance
The Income Tax Act (Canada) currently
provides that where a gift is considered a gift by Will or a gift
by direct designation, the donation is deemed to have been made by
the individual immediately before the individual's death.
The tax credits arising from the gift are applied to the
deceased's final tax return, with any excess credit available
to be carried back and used against the previous year's
income. Tax credits arising from a gift by Will cannot be
used against income earned by the estate.
Conversely, where a donation constitutes a gift from the
deceased's estate, the resulting tax credits may only be
applied to the tax that would otherwise be payable by the
estate. Such tax credits may not be used on the
deceased's final tax return or against income in any prior
The draft legislation proposes that, effective for gifts in
respect of a death occurring on or after January 1, 2016, a gift by
Will or by direct designation will no longer be deemed to have been
made by the deceased immediately before death. Instead, the gift
will be deemed to have been made by the estate at the time the
property is transferred to the recipient charity.
Provided that the gift is made within 36 months of death, the
new rules would then provide flexibility by affording estate
trustees the discretion to allocate the tax credits resulting from
a gift by Will or direct designation against any of the
(a) the taxation year of
the estate in the year the gift was made;
(b) any earlier taxation
year of the estate; or
(c) the last two taxation
years of the individual prior to death.
There are several implications that appear to flow from these
changes. The new rules will provide for increased flexibility
in the allocation of tax credits and increased claim room.
Estate trustees will be able to assess where the tax credits may be
applied most beneficially (i.e. to reduce taxes owed against the
taxpayer's last two T1 returns or in the estate) and thereby
optimize the allocation of such tax credits against the relevant
income. This may result in increased tax savings for donors
on death and for their estates.
The new rules will also affect the valuation of bequests.
Unlike under the current rules, in which the gifted property is
valued as of the time of death, the new rules will shift the
valuation date to the date the property is actually received by the
charity. While this may simplify the valuation process for
the recipient charity, it may make it impossible for some gifts to
be claimed on the initial filing of the deceased terminal return
where the property has not yet been transferred as of the filing
date (with its value therefore unknown). This may lead to the
increased filing of adjustments after the gift is made rather than
claiming credits in the initial filing.
We will keep our readers apprised as this draft legislation
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
Under the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan Act and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions.
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