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Taxation at Death - Charitable Donations
12-13-2017
Benjamin Franklin (1706-90) used the form we are currently more familiar with, in a letter to Jean-Baptiste Leroy, 1789, which was re-printed in The Works of Benjamin Franklin, 1817:
"'In this world nothing can be said to be certain, except death and taxes."
Tax relief is allowed under the Income Tax Act to encourage taxpayers to make donations to support activities of registered charities and other non- profit organizations. In particular, additional relied is provided for the year of death and the immediately preceding year.
For individuals, the tax relief for donations is provided in the form of non-refundable tax credit which may be claimed to reduce the income taxes payable for the year and the subsequently five years.
Generally, the amount of tax credit that may be claimed in respect of charitable gifts is limited to 75 per cent of net income.
As an additional relief to the deceased taxpayer, the amount of charitable gifts that can be included for purposes of the donation tax credit for the year of death and the immediately preceding year will be extended to be equal to the individual’s income for the year. Therefore, for th year of death and the year immediately death, donation credits may be claimed to the extent of 100 per cent of net income and taxes may be fully sheltered by donation credits where applicable.
For this purpose, the amount of donation included in the calculation will consist of donations made during the year by the deceased while alive, any donation carried forward from previous years as well as donations deemed to be made by the deceased by Will.
The term “gift” itself is not defined in the Income Tax Act. Therefore, reference is made to common –law principles.
“Under common law, a bona fide gift is a voluntary transfer of real or personal property from the donor, who must dispose of his or her property, to a done, who received the property given. Therefore, to qualify, the donation must be in the form of an outright gift. Any obligation on the donor would cause the transfer to lose its status as a gift”
According to CRA, charitable gifts made by an individual in his or her Will are deemed to have been made by the individual in the year of death.
CRA’s administrative practice allows a taxpayer to initially choose which spouse or common- law partner will report a donation or gift and allows for the subsequent transfer of any carry-forward balances from one year to the other. Since the gift made by an individual’s will is deemed to be made in the year of death, the donation is available for the administrative practice of spouse sharing donations.
This will seem to imply that any donation carried forward in the deceased’s terminal tax return can also be transferred and carried forward in the surviving spouse or common-law partner’s return to the extent of the five-year carry forward period.
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