On January 15, 2016, the Department of Finance released draft
legislation that proposes to amend the rules in the Income Tax
Act (ITA) that deal with whether donations of property by
estates are exempt from capital gains tax as well as how estates
are permitted to use charitable donation tax credits (CDTCs).
The legislative proposals specifically deal with donations made
by estates that are no longer graduated rate estates
(GREs). Generally speaking, a GRE is an estate that has been
specifically designated as a GRE and that meets certain other
technical requirements. The estate will remain a GRE for the
36-month period following the death of the particular individual,
during which time certain tax benefits are conferred on the
As indicated above, the new legislative amendments propose to
make it more flexible for estates that are no longer GREs
to obtain certain tax benefits. More specifically, Finance is
proposing that those benefits be available beyond the 36-month
period and up to 60 months after the taxpayer's death.
The new legislative proposals are explained in more detail
Gifts of Public Securities,
Ecological Land, and Cultural Property
The ITA currently provides that a taxpayer's taxable capital
gain from the disposition of any of these types of property is
equal to zero if the disposition is deemed by the ITA to have
occurred immediately before the taxpayer's death and
the property is the subject of a gift made by the
taxpayer's GRE to a qualified donee. This change
was only recently enacted and is applicable to 2016 and subsequent
The new amendments will modify the language in the ITA that
provides that the capital gains exemption will be available where
the gift is "made by the taxpayer's GRE" with a
reference to "the taxpayer's estate." Finance
has indicated that the result of this will be that the capital
gains exemption will be available for gifts made up to 60 months
after the taxpayer's death.
Finance has proposed that once enacted, this change will apply
to the 2016 and subsequent taxation years.
Use of Charitable Donation Tax Credits
Under the rules currently in place and that apply to the 2016
and later taxation years, a GRE is permitted to allocate CDTCs in
any of the following taxation years:
the taxation year of the estate in which the donation was
an earlier taxation year of the estate; or
the last two taxation years of the individual before the
Finance's proposed amendments extend the time in which GREs
may take advantage of their ability to allocate CDTCs. While
the existing legislation only allows for the allocation to be made
within the 36-month period following an individual's death and
during which time the estate is a GRE, the proposed changes would
extend this period to 60 months.
Finance indicated in the background document that it released
with the legislative proposals that any CDTCs arising from
donations made after the estate ceased to be a GRE could only be
allocated among either:
the taxation year in which the donation was made; or
the last two taxation years of the individual.
Finance has proposed that these amendments
apply to the 2016 and subsequent taxation years.
If implemented in the form proposed, these amendments will be a
welcome relief to many individuals and organizations since they
provide more flexibility to choose the year in which gifts of
property can be made by estates in order to eliminate liability for
capital gains tax, as well as more flexibility for estates to use
Notably, Budget 2015 and subsequent legislative amendments
proposed to change the rules in the ITA around private company
shares deals. As the legislation was originally released,
such gifts would be subject to the same 36-month cut-off.
Finance's January 15, 2016 proposals do not address this
issue. Thus, it remains unclear how gifts of private company
shares will be dealt with in light of these new amendments.
Finance has asked for comments on the draft legislation to be
submitted before February 15, 2016. For more information, click here.
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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