15 September 1999 External T.I. 9922865 - 118.1(5) - PERCENTAGE OF RESIDUAL

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:

1. Whether a gift made under a will which states that specified registered charities are to receive specified percentages of the "residual" of an Estate, constitutes a "gift by will" for the purposes of subsection 118.1(5) of the Act.

2. Whether the use of a particular formula for calculating the "residual" and therefore the amount of the donations, would deny the application of subsection 118.1(5) of the Act.

Position:

1. Unable to rule on application of 55.118.1(5)

2. Unable to rule on appropriateness of specific calculation used to determine "residual" and quantum of each donation.

General Comments - where terms of will are clear as to intent to donate to specific percentages of residual to specific registered charities and residual is calculated in a reasonable manner that

is consistent with the terms of the will ss. 118.1(5) of the Act would apply.

Reasons:

Substantial relevant event (i.e. death of taxpayer) has already taken place and no legislative or common law support to enable ruling on appropriateness of calculation.

xxxxxxxxxx 992286

September 15, 1999

Dear Sirs:

Re: XXXXXXXXXX

This is in reply to your letter of August 20, 1999 wherein you requested an advance income tax ruling be issued in respect of the application of subsections 118.1(3), 118.1(4) and 118.1(5) of the Income Tax Act (Canada), to the above taxpayer. As we had discussed in our telephone conversation, we are unable to issue an advance income tax ruling in respect of this transaction for two reasons:

1. In our view, the application of subsection 118.1(5) is a question of fact based on the terms of the will and, to the extent that it applies, it applies automatically at the time of death of the taxpayer. Therefore, if there were in fact "a gift by will" in your situation, it has already taken place at the time of XXXXXXXXXX death, and is not the subject of a proposed transaction, upon which we are able to rule.

2. We are unable to provide an advance ruling with respect to the appropriateness of a calculation which may be used to determine the residue of the Estate as there is no legislative or common law support for any particular method of calculation in this situation.

Although we are unable to provide an advance tax ruling, we can provide you with our general comments in respect of the application of these provisions, which may be of assistance to you.

Where the wording of a taxpayer's will is such that the taxpayer is considered to have made "a gift by will" to a qualified donee, subsection 118.1(5) will apply at the time of the taxpayer's death to deem the charitable donation to have been made immediately before the taxpayer's death. Where subsection 118.1(5) applies, the deceased would be entitled to a deduction pursuant to subsection 118.1(3), in the year of death, or by virtue of subsection 118.1(4) to a deduction in the year preceding the year of death.

Whether or not a gift is considered to have been made by a taxpayer "by his or her will" is a question of fact. The Department's view is that where the wording of the will is such that:

a) it is clear that the deceased taxpayer intended to make donations to specific registered charities,

b) the amount of the donation to be made to each charity is stipulated as a specific percentage of the residual of the deceased's Estate,

c) the will clearly specifies what is to be paid from the Estate in determining the amount of any residual, and

d) the will does not provide for discretionary capital encroachments by the trustees of the Estate or others,

then a donation will be considered to have been made by the deceased by his or her will for the purposes of subsection 118.1(5).

The Department is not able to provide comments on the appropriateness of any specific calculations used to determine the residual of the Estate. We would comment however, that where the calculations used are reasonable and consistent with the wording of the will where the will provides that the trustees are to pay for specific debts and expenses from the Estate, in our view, the fact that a calculation must be used to determine the specific dollar amount of a donation would not deny the application of subsection 118.1(5) of the Act.

We trust that our comments will be of assistance to you and we will be sending you a refund of the deposit which was sent to us with your request for an advance income tax ruling.

Yours truly,

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