Sharing Charitable Tax Credits After 2016
When gifts are made by an individual’s estate, can the individual’s surviving spouse share the donation credits arising from that gift?
On January 27, 2015, the Canada Revenue Agency (“CRA”) made comment on this issue with regards to the current rules, as well as the rules that will apply starting in 2016. The CRA confirmed that its practice of allowing spouses and common law partners to share donation credits will indeed continue into 2016 and beyond. This practice was also codified in the 2014 Federal Budget.
The 2014 Federal Budget did introduce substantial changes to the tax treatment of gifts under a Will or beneficiary designation. Current CRA rules deem charitable gifts made on death as having been made by the deceased immediately before death, resulting in a tax credit to the donor’s final tax return. In cases where there is an excess credit, it can be carried back and used against the income reported in the prior year.
The new rules also propose that gifts made within 3 years of an individual’s death can be allocated to the available tax credits against the tax year of the estate in either: the year the gift was made, an earlier tax year of the estate or the last two tax years of the deceased prior to death.
Executors will be tasked with making the best decision in the circumstances but will likely welcome the increased flexibility. The CRA has further clarified that the changes do not allow a surviving spouse to claim gifts made by the deceased within 3 years of their death.
It is important to remember that only donations to registered charities qualify for tax credits and that the tax consequences of a gift depend on a list of factors. More information on which charities are registered and the tax consequences of certain gifts can be found here and here, respectively. As with any estate planning, a qualified professional should be consulted before making any changes.
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