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.