If a person died prior to 2016 a donation made in their will or a designation to a charity in their RRSP, RIF or TFSA gave that person a donation tax credit which could be claimed by that person in the year prior to their death. If there was an unused portion their estate could not claim any of the unused donation tax credit.
The 2014 budget changed this so that if a person dies after January 1, 2016 the estate can claim the donation tax credit either in the year the donation is actually made or in an earlier year of the estate. The estate may also claim the deceased individual to have made the donation in the year they died or in the year before they died.
These new rules give the executor more flexibility to use the donation tax credit. There are however some disadvantages to the new rules. The surviving spouse of the deceased can no longer use any of the donation tax credit (they could do this pre-2016).
Also the donation is deemed to have been made when the donation actually passes to the charity. This may be some time after the date of death. The estate then will be required to obtain a value of the gift at the date of death for probate purposes as well as at the date the gift is transferred to the charity for tax purposes. This is not difficult if the gift is money or investments but it can be costly if the gift is land or the shares of a private corporation when two valuations will be required.
Finally the executor must ensure that the gift is made to the charity within 36 months of the death to retain the donation tax credit as the new rules only apply to Graduated Rate Estates (GREs). Normally this would be ample time to transfer the property but in a complex estate it could take longer especially if the estate is contested and litigation is required.
Deborah A. Todd
