Estate Donations by Former Graduated Rate Estates
Notice to the reader
This measure has received Royal Assent.
Under proposed changes released for consultation in a Department of Finance News Release on January 15, 2016, an estate that is a graduated rate estate (GRE) will have additional time to make a charitable donation and benefit from the flexible allocation of the donation as well as the capital gains exemption for donations of certain properties. These proposed changes will apply for donations of property made by a former GRE.
1. What are the current rules for deaths after 2015?
In 2014, rules were enacted for deaths occurring after 2015 to deem charitable donations made by will and designation donations (donations of a direct distribution of proceeds from a registered retirement savings plan, registered retirement income fund, tax-free savings account, or life insurance policy as a result of a beneficiary designation) to be made by the individual’s estate. Where certain conditions are met, these donations are deemed to be made by the individual’s GRE.
2. What are graduated rate estate donations (GRE donations)?
GRE donations are donations effected by a transfer of property to a qualified donee (QD) by a GRE. In this case, the donated property must be property that was acquired by the estate on and as a consequence of the death (or property that was substituted for such property). GRE donations also include designation donations.
3. What are the January 15, 2016 proposed changes?
Under the proposed changes, the legal representative of the individual’s estate will be able to allocate donations made by former GREs (former GRE donations) among any of:
- the taxation year of the estate in which the donation is made, or
- the last two taxation years of the deceased individual.
Note that any unused donation amount can be carried forward five years from the year in which the donation is made (or 10 years for a gift of ecologically sensitive land made after February 10, 2014).
Where the property donated is a property that benefits from a capital gains exemption, the exemption will be extended to a capital gain realized on the deemed disposition of the property immediately before the individual’s death.
4. What are former graduated rate estate donations (former GRE donations)?
These are donations effected by a transfer of property to a QD by a former GRE after 36 months but within 60 months of the individual’s death. A former GRE is an estate that ceases to be the individual’s GRE because it remains in existence for more than 36 months after the individual’s death but continues to meet the other requirements of the definition of a GRE. The donated property must be property that was acquired by the estate on and as a consequence of the death (or property that was substituted for such property). Former GRE donations also include designation donations.
5. Who can claim a Charitable Donation Tax Credit (CDTC) in respect of an estate donation that is not considered a GRE donation or former GRE donation?
An estate can claim the CDTC in respect of a donation that is not a GRE donation or a former GRE donation in the year in which the donation is made or in any of the five following years (or 10 years for a gift of ecologically sensitive land made after February 10, 2014). However, the donation cannot be allocated to a taxation year of the individual or an earlier year of the estate.
6. Could a GRE donation or a former GRE donation result in a gain or loss to the estate?
Where the estate of an individual donates property that was the subject of a deemed disposition by the individual immediately before the individual’s death, and the property’s fair market value upon transfer to the QD has changed, the difference will result in a gain or loss to the estate that will generally be recognized for income tax purposes. This will be the case whether the donation is a GRE donation, former GRE donation or not.
If the property donated is a property that benefits from a capital gains exemption, and where the estate is a GRE and the donation is a GRE donation, the capital gain on the deemed disposition of the property immediately before the individual’s death will be exempt.
It is proposed that this capital gains exemption also be extended to former GRE donations.
7. When do the proposed rules for former GRE donations come into effect?
The proposed rules will apply if the individual’s death occurs after 2015, for the 2016 and subsequent taxation years.
8. Where can I get more information about this change?
The CRA is committed to providing taxpayers with up-to-date information. The CRA encourages taxpayers to check its webpages often. All new forms, policies, and guidelines will be posted as they become available.
In the meantime, please consult the Department of Finance News Release.
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