All About Estates

Gift of securities by executors of a will (continued)

The Canada Revenue Agency provided its views regarding the income tax implications of a gift made by executors of an estate of a deceased individual.  The information that follows is based on a revised set of facts

The taxpayer died in 2016.  His Will named his three sons as equal beneficiaries and co-executors, with no designation of amounts to be given to charitable organizations but giving the co-executors the flexibility to make donations if they wish.  His assets at the time of death included a mutual fund investment account with a gain of $1 million on assets with a total fair market value of $4 million.  Generally, the capital gain on the mutual fund account would be included on the final return of the deceased and the adjusted cost base of the mutual funds would then become $4 million for the estate in regards to any future dispositions or distributions to the beneficiaries.

The co-executors decided to donate $500,000 worth of mutual fund units in kind to a registered Canadian charity from the estate which is the only trust created on death and has been designated a Graduated Rate Estate (GRE) in 2017.

Would the donation be available to offset personal taxes owing on the final return and would the capital gain inclusion rate be 0%?

Starting in 2016, where a gift is made or deemed to have been made by a GRE, the estate can allocate the donation to any of: (a) the last two taxation years of the deceased; (b) the year of the donation or any of the five following years of the estate; or (c) any preceding year of the estate.  Furthermore, if the security was a qualifying security and the donee a qualifying donee then the capital gain inclusion rate would, in fact, be 0%.

Thanks for reading.

About Derek de Gannes
Derek A. de Gannes: Director, Domestic & International Tax of RSM Canada. RSM Canada is committed to the highest level of integrity, quality and professionalism and provides clients with solutions in the area of Audit, Tax and Transaction Services. Email: derek.degannes@rsmcanada.com

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