By Theresa L.M. Man

The CRA recently released CRA View Document 2020-086613 that was dated August 21, 2021, responding to the question of whether an individual could claim a non-refundable tax credit on the person’s final return for a gift by will to a US organization. In response, the CRA reviews the rules on when a gift by will is deemed to be made by the estate, and the circumstances in which a non-refundable tax credit for gifts by will to US organizations can be claimed.

The CRA explains that pursuant to subsections 118.1(4.1) and (5) of the ITA, a gift by will is deemed to be made by the estate at the time the gift is transferred to the donee. Paragraph 118.1(5.1)(b) of the ITA applies in particular to a gift made by a graduated rate estate (“GRE”) of an individual if the subject of the gift is property that was acquired by the estate on and as a consequence of the death or is property that was substituted for that property. In this scenario, pursuant to paragraph (c) of the definition of “total charitable gifts” in subsection 118.1(1), the estate will have the flexibility to allocate the donation to any of: (a) the last two taxation years of the deceased individual; (b) the year of the donation or any of the five following years of the estate; or (c) any preceding year of the estate in which it is the individual’s GRE.

In relation to gifts to U.S. organizations, the CRA made reference to the Canada-U.S. Tax Convention (“Treaty”), which provides limited tax relief with respect to gifts made by Canadian residents to certain U.S. organizations that are not qualified donees. Pursuant to paragraph 7 of Article XXI of the Treaty, a gift made by a Canadian resident in a taxation year to an organization that is resident in the U.S. that is generally exempt from U.S. tax, and that could qualify in Canada as a registered charity if it were created or established and resident in Canada, will be treated as a gift to a registered charity. In this regard, the amount of relief that would be available under the ITA is restricted to the income of the Canadian resident for that year from U.S. sources. However, under the Treaty, the restriction to income from U.S. sources does not apply to the eligible amount of a gift to a college or university at which the Canadian resident or his/her family member(s) is or was enrolled. The CRA accepts that any organization that is exempt under section 501(c)(3) of the U.S. Internal Revenue Code will qualify for the purposes of paragraph 7 of Article XXI of the Treaty.

​Read the February 2022 Charity & NFP Law Update