2014 Federal Budget – Impact on CharitiesExcerpts from Carters Charity Law Editor. Read the full report from Carters here.>>
One of the welcome proposed changes in Budget 2014 is to provide more flexibility to donations made by will for income tax purposes.
Currently, a gift made by an individual’s will is deemed to have been made by the individual immediately before he/she died. A gift made in the year of death is deemed to have been made in the year immediately prior to death to the extent that the tax credit for the gift has not been claimed in the year of death. This would allow the donation tax credit to be claimed in the individual’s terminal tax return or in the year immediately prior to death. On the other hand, tax credit for a gift made by the estate of a deceased person can only be claimed by the estate.
For deaths that occur on or before January 1, 2016, Budget 2014 proposes that donations made by will and designation donations will be deemed to have been made by the estate, at the time at which the property that is the subject of the donation is transferred to a qualified donee. As such, these donations will no longer be deemed to have been made by the testator immediately before death. To provide additional flexibility of the tax treatment of these gifts, the trustee of the estate will be able to allocate the donation made by will among any of the following: (a) the taxation year of the estate in which the donation is made; (b) an earlier taxation year of the estate; or (c) the last two taxation years of the deceased person.
A qualifying donation will be a donation effected by a transfer within the first 36 months after the individual’s death of property to a qualified donee. In the case of a transfer from an RRSP, RRIF, TFSA or insurer, the existing rules for determining eligible property for designation donations will apply. In any other case, the donated property will be required to have been acquired by the estate on and as a consequence of the death (or to have been substituted for such property).
An estate will continue to be able to claim a donation tax credit in respect of other donations in the year in which the donation is made or in any of the five following years.
The current limits that apply in determining the total donations that are creditable in a year will continue to apply. In this regard, generally, the maximum amount of donations that may be claimed in a year is 75% of net income. Donations made in the year of the donor’s death and the immediately preceding year could be deducted up to 100% of the deceased’s income in those years. However, a gift made by an estate may only be entitled to a charitable donation credit up to 75% of the income of the estate.
Because of the additional tax benefits of gifts made by will that is currently available, determining whether a gift qualifies as a gift made by will has been a key consideration in estate planning in order to obtain the desired tax results.