20 January 1999 External T.I. 9827515 - GIFT BY WILL - DONATION RECEIPT

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues:

Where subsection 118.1(5) applies to a gift of shares by will, should the charity issue a receipt for the value of the shares at the date of death or the value of the shares at the time the charity receives the shares.

Position:

Subsection 118.1(5) generally provides that where an individual by the individual's will makes a gift, the gift is deemed to have been made by the individual immediately before the individual died. It is our view that where subsection 118.1(5) is applicable to a gift in kind, the amount of the gift is the fair market value of the property gifted immediately before the individual's death. Accordingly, the official donation receipt should show the amount of the gift as being the value of the shares immediately before death.

Reasons:

Legislation.

XXXXXXXXXX 							982751
J. Leigh
Attention:  XXXXXXXXXX 

January 20, 1999

Dear Sirs:

Re: Gift by Will - Donation Receipt

This is in reply to your letter dated October 15, 1998 concerning a gift of marketable securities made to a registered charity pursuant to the terms of the will of a deceased individual. You have asked for our views on whether the charity should issue an official donation receipt for the value of the marketable securities at the date of death or the value of the marketable securities at the time the charity takes carriage of the securities.

Subsection 118.1(5) of the Income Tax Act (the "Act") generally provides that, where an individual by the individual's will makes a gift, the gift is deemed to have been made by the individual immediately before the individual died for the purposes of section 118.1 of the Act. This provision applies where a specific gift is made to a qualified donee expressly in and by the terms of the will itself without any discretion by trustees (i.e., the qualified donee on reading the will can expect that a specific gift be made to it). While subsection 118.1(5) of the Act establishes the timing of the gift, it does not expressly establish the amount of the gift. However, in our view, it is reasonable to interpret the provision such that the amount of a gift made by an individual's will is the fair market value of the gift immediately before the individual's death.

We note that this interpretation is consistent with the provisions of paragraphs 70(5)(a) and 38(a.1) of the Act. Paragraph 70(5)(a) of the Act deems a deceased taxpayer to have disposed of each capital property of the taxpayer immediately before death and to have received proceeds equal to the fair market value of the property immediately before death. Subparagraph 38(a.1)(ii) of the Act provides for a lower income inclusion rate in respect of a deemed capital gain arising on the death of an individual to the extent that certain property is the subject of a gift in the individual's will.

Accordingly, in the situation described, if subsection 118.1(5) of the Act applies to the gift of marketable securities, the charity should issue an official donation receipt showing the amount of the gift as being the value of the marketable securities immediately before the individual's death.

While we hope the foregoing comments are useful, they are given in accordance with the practice referred to in paragraph 22 of Information Circular 70-6R3 dated December 30, 1996 and are not binding on the Department in respect of any particular situation.

Yours truly,

Manager
Financial Institutions Section
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch