Filing Your Return -> Donations in the Year of Death and in the Will
Donations in the Year of Death and in the Will
Income Tax Act s. 118.1(1), 118.1(4), 118.1(5), 118.1(5.1), 118.1(5.2), 118.1(5.3)
When a donation, or gift, is bequeathed in the will, it is deemed to have been made immediately before the individual died.
A person can designate a charitable organization (qualified donee) as the beneficiary of an RRSP, RRIF or TFSA, or of a life insurance policy. When this is done, as long as the transfer to the charitable organization occurs in the 36-month period that begins at the time of death, the transfer is deemed to be a donation or gift made immediately before the individual's death. Written application can be made to the Minister of National Revenue to extend the 36-month period.
On the final tax return for the deceased person, you would claim all donations or gifts made in the year of death, those bequeathed in the will, directly transferred from RRSPs, RRIFs, TFSAs, or life insurance policies, and any carried forward from previous years, to a maximum of 100% of the taxpayer's net income. Any excess can be claimed on the tax return for the previous year, again to a maximum of 100% of the taxpayer's net income.
In some cases, the donation tax credit for these donations can be claimed by the surviving spouse instead of by the deceased taxpayer. As a matter of administrative practice, donations or gifts made by a deceased person will be accepted by Canada Revenue Agency (CRA) as being donations or gifts of the surviving spouse. However, this is not enforceable in court, because this practice is not reflected in the Income Tax Act. As an example of this, see the Douziech Tax Court Case from 2000. In this case, the donations were made in the year of death, but before the couple married.
When the surviving spouse claims the donations of the deceased spouse, this would be done on the tax return for the year of the spouse's death. The maximum amount that may be claimed as donations would be 75% of the net income of the surviving spouse. See the CRA Technical Interpretation 2010-032621E5 for more information. It is possible that any unused portion could be carried forward by the surviving spouse for up to 5 years, but this is not addressed by the technical interpretation. If there are other beneficiaries besides the surviving spouse, it is unlikely that the spouse could claim the donations, unless it had no effect on the inheritances of other beneficiaries.
For a donation made by an individual's estate, the CDTC may be applied against only the estate's income tax otherwise payable.
2014 Federal Budget Proposals
The budget proposes that, for the 2016 and subsequent taxation years, donations 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.
Also, the available donation will be allowed to be allocated among any of:
The current limits that apply to determine the total donations that are creditable in a year will continue to apply. 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.
An estate will continue to be able to claim a CDTC in respect of other donations in the year in which the donation is made or in any of the 5 following years.
TaxTips.ca ResourcesDonations tax credit
Canada Revenue Agency (CRA) ResourcesP113 Gifts and Income Tax
Tax Tip: Compare alternatives to see if it is better to claim donations and gifts on the return of the deceased or of the surviving spouse.
Revised: January 30, 2021
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