At issue

Most tax credits are limited in value to the lowest bracket tax rate. The charitable tax credit is generally more lucrative, as it is claimed based on two tiers. Federally, the lowest bracket rate applies on the first $200 of annual donations, with any excess entitled to a credit at the top bracket rate. (Provincial credits operate similarly, though not all are exactly at the top bracket rate.)For spouses, there is a further benefit available via administrative practice of the Canada Revenue Agency. CRA recognizes that donations are generally made based on the family unit, despite that one name may appear on a donation receipt. Accordingly, the agency allows donations to be claimed on the return of either spouse or common law partner. This simplifies reporting and efficiency of credit use, at the very least helping elevate past the $200 threshold.

Until recently, spouses could also depend on a related CRA administrative practice on the death of a spouse, but after 2015 it is no more.

2010-0372621E5 Donation by will claimed by spouse

The CRA was asked whether an individual can claim a tax credit for a charitable donation made by his/her deceased spouse’s will in the year in which the spouse died.

The response cited the CRA’s general administrative position on donations on behalf of a family unit. It went on to highlight ITA s.118.1(5) (as it was at that time), which deems charitable gifts made by an individual in his or her Will to have been made by the individual in the year of death and not by the estate. This is despite that the executor/estate really carries out the donation, and that it may not actually occur until a later year altogether.

The writer then stated that the deceased’s executor and the surviving spouse (which could very well be the same person) are entitled to claim the tax credit in the most beneficial manner available. Thus, supported by the deemed timing of the donation, a spouse would be entitled to claim the donation on his/her own return for the year in which the spouse died.

Bill C-43, Royal Assent (2014-12-16)

This Bill enacted provisions of the February 11, 2014 federal budget.

The definition of “total charitable gifts” in s.118.1(1) was replaced, including explicit acknowledgement for either the individual or his/her spouse or common law partner to claim donations. This somewhat codifies the past CRA administrative practice with respect to the family unit, except that this treatment does not apply to donations made by a trust.

In that latter respect, new provisions were also enacted to deal with donations made by Will. Such donations would no longer be deemed to occur in the year of death. Rather, the donation could be claimed in the year it is actually made, with the executor (on behalf of the estate, which is a trust) having discretion to claim the donation in any earlier estate year, in the terminal year or the year prior to death.

2014-0555511E5 E – Spousal sharing of charitable gifts

On November 7, 2014 (while Bill C-43 was still making its way through Parliament), a taxpayer inquired whether the CRA would continue to apply its administrative position from letter 2010-0372621E5.

The CRA response was issued January 27, 2015, citing the amended definitions and deeming provisions outlined above. Given these amendments, the CRA’s administrative practice as stated in the 2010 letter will no longer apply for deaths occurring after 2015.

Practice points

1. For modest donations (relative to prevailing income), it is likely that the full value of the credit will be able to be claimed through the carryback to the deceased’s terminal year or the year prior to death. Where the donor has little income, the inability of a surviving spouse to report the donation may mean that some of the credit value may be unusable.
2. The Bill C-43 amendments also encompass donations made by beneficiary designation under life insurance and through registered plans.
3. Those who have strategically planned their charitable giving may wish to consult with their philanthropic and tax advisors whether reconsideration and revision may be warranted. For some, it may swing the balance toward lifetime gifting, rather than being exposed to potential uncertainty in the estate.