Tag: charitable tax credit
I try to seize every opportunity I can to learn about art. In preparing today’s blog, I was intrigued to read about the UK’s Cultural Gifts Scheme and its relationship to estates.
The Cultural Gifts Scheme & Acceptance in Lieu allows UK taxpayers to donate important works of art and other heritage objects in return for a tax reduction, which includes inheritance tax. The donated work is then held for the benefit of the public or the nation at an eligible museum or gallery. According to this article from the Guardian, the Scheme was first introduced in 1910 as a way of allowing individuals to offset inheritance tax bills, and later, in 2013, to allow individuals to be able to make donations during their lifetime in order to offset future tax liabilities.
Any art admirer should have a look at the 2018-2019 Annual Report which provides a list of items that were received, along with some pretty pictures of the items :). It is a feast for the eyes and the senses. Some of the highlights include:
- a Portrait of the Emperor Charles V by Peter Rubens, which has gone to the Royal Armouries in Leeds
- a platinum and diamond necklace with black velvet ribbons, convertible to a brooch, made by Cartier in Paris c. 1908-1910, which has been allocated to the Victoria and Albert Museum
- 361 botanical drawings by the illustrator Florence Helen Woolward
- Bernardo Bellotto’s painting of Venice on Ascension Day, which settled £7 million of tax
- Damien Hirst’s Wretched War sculpture, given by the artist’s former business manager Frank Dunphy settling £90,000 in tax
In Canada, although art can be subject to capital gains, and possibly other taxes, it is possible for a donor to limit, or avoid the tax altogether, including by way of claiming a charitable tax credit. Individuals thinking about estate planning and/or donating art should seek the advice of a professional advisor to maximize the amount of savings.
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A couple of months ago, I blogged about a letter from the Department of Finance in which it addressed concerns regarding amendments to the Income Tax Act (the “ITA”) that have come into force as of January 1, 2016. The stated purpose of the letter was to confirm the Department of Finance’s understanding of the issues raised and to describe an option for responding to these issues. There was no promise that the option would be pursued or that any action would be taken.
However, on January 15, 2016, the Department of Finance released draft legislative proposals that would modify the income tax treatment of certain trusts and their beneficiaries. The legislative proposals, along with explanatory notes, can be found here.
Currently paragraph 104(13.4)(a) of the ITA provides that upon the death of a beneficiary of a spousal trust, the trust’s taxation year will be deemed to come to an end on the date of the individual’s death. Subsequently, according to paragraph 104(13.4)(b), all of the trust’s income for the year is deemed to have become payable to the lifetime beneficiary during the year, and thus must be included in computing the beneficiary’s income for their final taxation year. This has been raised as an issue due to paragraph 160(1.4) which makes the trust and the beneficiary jointly and severally liable for the portion of the beneficiary’s income tax payable as a result of including the income from the trust. As such, it is possible that the beneficiary could be responsible for the full income tax liability, to the benefit of the trust and the trust’s beneficiaries.
According to the draft legislation, paragraph 104(13.4)(b) is to be amended and 104(13.4)(b.1) is to be added, such that (b) does not apply to a trust unless all the requirements are met and the trust and the beneficiary’s graduated rate estate jointly elect that (b) apply. It would, therefore, be up to the trust and to the estate of the beneficiary to determine whether they wish the trust’s income to be included in the income of the beneficiary for their final taxation year.
There was also an issue raised with respect to the stranding of charitable tax credits. This situation could arise if a trust were to make a charitable donation after the beneficiary’s death. As the trust’s income for the year has to be included in the beneficiary’s income, consequently, the trust would have no income against which to deduct tax credits. Based on the draft legislation, as long as the beneficiary and the trust do not jointly elect for 104(13.4)(b) to apply, the trust’s income will be included in the trust’s tax return, and any charitable donation tax credits should be able to be deducted from that income.
The press release issued with the draft legislation stated that the Department of Finance had released the draft legislative proposals for consultation and welcomed interested parties to provide comments by February 15, 2016.
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