Proposed Changes to Charitable Tax Credits Less Flexible than First Appeared


Written on November 21, 2014 – 9:40 am | by Katie Ionson

When the government released the 2014 Federal Budget last February, one buzzed-about change was the increased flexibility the Budget proposed for testamentary charitable donations.

Under the current rules, gifts by Will to charities are deemed to have been made by the deceased immediately before his or her death and may only be applied against tax arising in the last two taxation years of the deceased. S. 118(5) of the Income Tax Act deems a gift by Will to have been made by the deceased immediately before death.[1]

The Budget proposed to extend the period in which these charitable tax credits could be applied, effective January 1, 2016. Under the proposed measures, gifts by Will will be deemed to have been made by the deceased’s estate at the time the gift is transferred to the charity. The executors of the deceased’s estate will have the ability to allocate the charitable tax credit arising from the donation among: (i) the estate’s taxation year in which the donation was made; (ii) an earlier taxation year of the estate; and/or (iii) the last two taxation years of the deceased. To qualify, the transfer of the gift to the charity must occur within 36 months of death.

On August 29, 2014, draft legislation was released for these changes. The draft legislation raises many questions and, in its current form, greatly restricts the proposed enhanced flexibility.

Significantly, the tax credit “carry back” discussed above will only apply if the estate that makes the gift is a graduated rate estate (a “GRE”). A GRE is a new concept. The draft legislation provides that a taxpayer may only have one GRE. This suggests that where multiple Wills are used, the executors will need to determine which “estate” should qualify as the GRE by designating itself as such in the estate’s first tax return.

If the gift is not made by a GRE, then the estate will have the ability to carry the tax credit forward for a period of five years, but will not be able to carry the tax credit back to previous years or apply it against the last two taxation years of the deceased. As a result, if a gift by Will is made using property that does not form part of a GRE, the executors could find themselves with less flexibility under the old rules than the new. Under the current rules, the credit could be applied against taxes arising in the deceased’s terminal year or the year prior. Under the proposed rules, no carry back would be available and the credit could only be applied against income of the estate.

Estate planners will now need to consider which estate is likely to qualify as the individual’s GRE (and/or include language providing the executors with flexibility to make the gift from either estate), in order to structure gifts by Will to ensure that the benefit of the tax credit is maximized.[2]

[1] There are special rules that apply to determine whether a gift qualifies as a “gift by Will” for purposes of the Income Tax Act.

[2] There are several other issues and potential “traps” with the proposed legislation, but this blog post is too short to discuss them here.

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    “But you never saw the person…”


    Written on November 20, 2014 – 6:00 am | by Ken Shulman

    A common question:  “How can one possibly do a retrospective assessment of capacity if you have never seen the person??”  It is generally accepted of course that a contemporaneous assessment is the best opportunity to determine whether an individual is capable of executing a Will or giving instructions for Power of Attorney (POA).  This is ideally the time to probe for task-specific criteria and to elicit the rationale for a specific distribution in a Will or choice of specific individuals for POA.

    The bias in favor of a contemporaneous assessment makes sense.  However, there are circumstances in which this may not always be the case.  For example, a poorly conducted contemporaneous assessment may not be as valuable in a legal contest as a comprehensive, well-conducted retrospective assessment.  The contemporaneous assessor may not have addressed the salient task specific criteria or may not have conducted a thorough cognitive examination.  This can be the case when physicians unfamiliar with the principles and details of mental capacity, offer gratuitous and facile opinions for the court to consider.  Moreover, in individuals who are in the early stages of dementia (a progressive neurodegenerative disease such as Alzheimer’s disease), the subtle changes in mental state may not be obvious at the relevant time.  This is especially true of the symptom of “suspiciousness” which can be the result of cognitive impairment.  In an early state of dementia, individuals  who lack insight into their impairment often attribute their subjective sense of unease or their inability to find things, to other people who they believe are deliberately stealing or trying to torment them.  These are known as compensatory delusions.  Stealing delusions are very characteristic of dementia (most commonly directed at a family member, especially daughters-in-law!).

    The opportunity to review medical records and observe the subsequent clinical course  together with the benefit of 20/20 hindsight, allows for a sharper picture to emerge of the nature of  changes in mental state and attitude.  A retrospective assessment that includes multiple perspectives, can help the court better understand the nature of the mental functions at work in a specific circumstance of Will making or granting of a POA.  This can also include a better understanding of the vulnerability of that individual to influence.  A surprisingly accurate picture can be painted by a comprehensive retrospective assessment. Let’s all keep an open mind.

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      November is MAKE A WILL MONTH


      Written on November 18, 2014 – 5:23 am | by Elaine Blades

      Every poll tells the same story: only one-half of adult Canadians have a will in place. A recent Scotiabank poll revealed the top reasons for failing to prepare a will to be: not having enough assets to justify making a Will (29%); now knowing where to start (24%) and being too young and/or “don’t know” (23%).

      During the month of November, the Ontario Bar Association (OBA) is partnering with the Alzheimer Society of Ontario in an effort to move the dial and “help Ontarians preserve their wishes and safeguard their loved ones by making a will”.  According to OBA President Orlando Da Silva, the organization has an obligation in this regard, “an obligation to improve the public’s awareness of this important legal tool and to help people overcome the intimidation they may be feeling in starting the planning process”.

      To that end, the OBA and the Alzheimer Society of Ontario are collaborating to provide useful information and tools, and dispel common myths and misunderstandings, about estate planning. Resources available through the OBA include: estate planning videos, a copy of the Alzheimer Society of Ontario’s “Estate Planner” and FAQs (Why do I need a will? What is this going to cost? I’m not wealthy, why bother? How can I protect my minor children by making a will?).

      Gale Carey, chief executive officer of The Alzheimer Society of Ontario, sums up the initiative as follows: “We have developed tools that take the intimidation out of taking the first steps toward estate planning. Our partnership with the OBA will highlight the next step: connecting people with the legal advice they need to ensure their plans are respected.”

      This initiative complements April’s OBA initiative, Make A Power of Attorney (POA) Month. I encourage everyone to visit the site and share the information.

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