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%.
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