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Winter 2003
Volume 2, Number 1
The information in Tax Perspectives is prepared for general interest only. Every effort has been made to ensure that the contents are accurate. However, professional advice should always be obtained before acting on the information herein.
Charitable Bequests
By Howard L. Wasserman, CA, CFP, TEP
Cadesky and Associates LLP (Toronto)
When an individual passes away, a final return must be prepared by April 30 following the year of death or six months after death, whichever is later. In that terminal return, the deceased taxpayer is able to claim donations made in the year and those included in the Will (subject to the restrictions discussed below). The amount of donations that can be claimed in the terminal return is limited to 100% of the income reflected in that return. If there are excess donations, they can be used in the immediately preceding tax year. The donation credit can be of significant tax savings. As stated above, there are two types of donations available in the year of death: those actually made and those gifted by Will. For those gifted by Will, it was CCRA's position that the charity must be named and the amount specified. This made it difficult to get a donation credit when a taxpayer's Will stated that a certain amount could be given to any charity at the trustee's discretion or that any money left over after specific bequests or payments should be donated to charity. In both of these situations, there was some uncertainty as to either the amount or the charity itself. CCRA has now developed some new policies as stated in their Technical Interpretation 2001-0090205. One of the new policies is that, where the Will states that a specific amount in total is available for charities, and a list of charities is given, a donation credit will be allowed in the terminal return, even though the trustee or executor has the discretion as to how much each charity will get. Another new approach from CCRA concerns charities not specifically named. Where the Will states that a trustee is to make a donation without identifying the charity, the donation could still be used as a credit in the terminal return. As long as the Will states that there should be a donation of either a specific property, a specific amount, or a percentage of the residue of the individual's estate, then the donation would be available as a tax credit. The above policies are a significant change from CCRA's previous policy. This changes the way individuals might formulate their Wills. In the past, professionals advised clients to name specific charities and give specific amounts. This was often difficult for individuals, since they did not always know the size of their estate. Therefore, whenever Wills are revised or new ones are made, this should be kept in mind.
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