On December 17, 2014, Bill C-43 received Royal Assent, ushering
in a new era of estate planning with proposed changes to the
Income Tax Act (the "Tax Act"). Included in the
bill are changes which will have a significant effect on post
mortem planning relating to charitable donations made on death. The
new rules will apply as of January 1, 2016.
Currently, gifts to qualified donees made "by Will"
are deemed to be made immediately before death. The tax credit can
be used in the year of death, thereby reducing taxes triggered on
the deemed disposition on death, or carried back to the immediately
preceding year. This regime met with criticism in that unused
credits cannot be carried forward and used by the deceased's
estate, and the requirement that the gift be made "by
Will" created some confusion and uncertainty in drafting
donation provisions so as to ensure the credit would be available
to the appropriate taxpayer at the desired time.
The new rules significantly change the way in which donations on
death will be treated for tax purposes. Gifts made "by
Will", designated gifts, and gifts made by an estate will all
be deemed to be made by the estate at the time the property is
actually transferred to the charity. The value of the gift will be
the value at the time of the donation. The estate can carry-forward
the unused tax credit for 5 years from the date of death.
Special rules will apply to gifts made by estates that qualify
as graduated rate estates ("GREs") at the time of the
donation. In such cases, the credit can be claimed:
by the deceased individual in the year of death or the
immediately preceding year,
by the GRE in the year of the donation or any prior year of the
in any of the next 5 tax years of the estate, provided that it
remains in existence.
An estate will qualify as a GRE if:
no more than 36 months have passed since the date of
the estate is a testamentary trust under the Tax
the estate designates itself as a GRE in its first tax return
that ends after 2015,
no other estate designates itself as a GRE of the individual,
the deceased individual's SIN is provided.
These rules provide enhanced flexibility to maximize the tax
credits available to GREs. The exemption from capital gains for
publicly traded securities will continue to apply to gifts made by
GREs, resulting in no deemed disposition immediately before death
for such securities provided they are subsequently donated to a
qualified donee by the individual's GRE.
Although the new rules will alleviate the issue of unused tax
credits in certain situations, many existing plans may no longer be
tax efficient. For example, gifts made by an alter ego, spousal
trust or joint spousal or common-law partner (after the death of
the settlor or spouse) can no longer be used to shelter the gain
formerly triggered in the trust on the death. This is because Bill
C-43 also introduces two important changes: first, a tax year end
will occur in the trust at the end of the date of death of
the settlor or spouse, and second, the tax triggered on the deemed
disposition of the trust's assets will be borne by the estate
of the deceased settlor or spouse (subject to the tax authorities
assessing the trust under a joint liability provision). When
combined with the fact that the charitable donation will be made by
the trust at a later date, it will not be possible to carry
back the charitable tax credit to shelter the tax liability
triggered on the death.
These new rules represent a significant change for donors,
charities and their advisors. Everyone should be encouraged to
review their donation planning before 2016 to ensure that it is
still appropriate and will achieve the intended objectives. For
those with irrevocable donation arrangements that are already in
place or for individuals who are mentally incapable and unable to
amend their existing testamentary donation planning, it may be
difficult or impossible to deal with the negative impact of the new
rules. Hopefully Finance will address these practical concerns in
an amendment before the January 1, 2016 implementation date.
It is not uncommon for parents to provide monetary gifts to their adult children. Parents may wish to help their child with a down payment on a property, or help pay out their child's existing mortgage.
On March 31, 2014, BC's new Wills, Estates and Succession Act1 ("WESA") will come into force. WESA introduces new protections for beneficiaries of estates that are in danger of being disputed or deemed ineffective by a court.
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