Executors: How to Claim Donations On The Final Return

Executors will want to review donations strategies carefully before year end if managing the final affairs of someone who passed away in 2016.  There are a series of new rules to be aware of.

A final T1 return for the deceased, from January 1 up to the date of death must be filed to report taxable income to the date of death.  In addition, a series of elective returns can be chosen in certain instances for certain times of income.  A tax specialist should be consulted to sort this out.

In life, donations may not exceed 75% of a taxpayer’s net income.  However, in the year of death, charitable donations may be made up to 100% of net income in the year of death and the immediately preceding year.

There are also special rules for the donations of property.  Capital gains on gifts of publicly-traded shares, ecologically sensitive land (except to a private foundation), and certified cultural property are not subject to taxation.  The donor will receive a donation credit (generally equal to the fair market value of the property) but will not have to pay capital gains tax on the donation.

In addition, trust taxation rules have changed for 2016.  An estate is created on the death of a taxpayer; however, the executor must designate that estate as the Graduated Rate Estate (GRE) for the deceased in order to have income that occurs after death taxed a graduated rates for 36 months.

When it comes to donations made in the deceased’s will after 2015, the donation will be deemed to have been made at the time the donation is transferred to the qualified donee so long as the transfer is made within 60 months of the date of death and made by the GRE (or its successor trust).  The trustee of the estate may then allocate the donation to

• The trust for the year in which the donation was made (maximum 75% of the trust’s net income),
• An earlier taxation year of the trust (maximum 75% of the trust’s net income),
• The last two taxation years of the deceased (maximum 100% of the taxpayer’s net income in each years), and/or
• Any of the following five years of the trust (maximum 75% of the trust’s net income in each year)

Practitioners who wish to brush up on their qualifications in helping executors with these filing may wish to enroll in Knowledge Bureau’s certificate courses, Final Returns on Death of a Taxpayer and T3 Basic Tax Preparation.

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