Assume Mr. X died in early 2016. Mr. X’s estate appears to meet all of the requirements to be a graduated rate estate (“GRE”), except the 1st return has not been filed as yet to formally designate it a GRE.
The estate made a charitable donation in early 2017; at the time of the donation, the estate had not met all the requirements of the GRE definition in the Income Tax Act (“the Tax Act”) solely due to the fact that the estate had not filed its return of income for its first taxation year.
In early April 2017, the estate will file an income tax return of income for its first taxation year ending in 2017, and in doing so, will fulfill all of the requirements to be a GRE.
Can an estate make a charitable donation prior to filing its first tax return, making the designation to be a GRE, and the donation be treated as a GRE donation such that it could be claimed in the deceased’s final return?
The Canada Revenue Agency (“CRA”) was recently asked to comment on this and the answer was yes.
According to the section of the Tax Act that applies to donations made by the GRE of an individual who died after 2015: it is a GRE donation if the donation is made within 60 months of the death and if either i) the gift is deemed to have been made in respect of death or ii) the subject of the gift is property that acquired by the estate as a consequence of death. In the CRA’s view, the wording of the Tax Act does not prevent a GRE donation from being made by an estate prior to its filing of its return of income for its first taxation year.
Accordingly, in the hypothetical fact scenario above, as long as the estate of Mr. X meets all of the requirements in the GRE definition at the time of the filing of its first return of income in 2017, the donation can be designated as a GRE donation if the requirements are met. In that case, the eligible amount of the donation can be claimed in the deceased’s return of income for the year of death or the immediately preceding year, or in the GRE’s return of income for the year of the donation or the previous year of the GRE. Any unused donation amount can be carried forward from the year in which the donation is made and claimed by the GRE within the limits in the Act.