Canada’s New Rules on Estate Administration – Is Your Charity Ready?
By Ruth Mackenzie
As part of its Economic Action Plan, the federal government introduced legislation impacting estate donations in October 2014. These new rules, which apply starting in 2016 are expected to have a significant impact on Canada’s charities and donors—and not all of it is good.
The Canadian Association of Gift Planners (CAGP) has been working to ensure the sector understands the new rules and their implications, as well as what actions charities might take to ensure organizational readiness, support their donors or mitigate anticipated challenges.
In February, CAGP and PGgrowth partnered to deliver a special issue of Gift Planning in Canada focused entirely on the topic (available here). In March, CAGP offered a free webinar providing an overview of the new rules, including key stories on how estate gifts will have different outcomes as a result. Many AFP members attended the live webinar, and its recording is still available on the CAGP website: www.cagp-acpdp.org.
While information sharing about the new legislation has been essential, equally important is ensuring the federal government understands fully the impact of the rules on Canada’s charitable sector. CAGP’s Government Relations Committee has done just that through a comprehensive submission to the Department of Finance in early March. At the same time, it has proposed amendments that help ensure charities are not disadvantaged and that the full value of intended gifts is available for public benefit. Following is a summary of that submission.
Testamentary charitable giving
The new rules introduce some flexibility in a testamentary gift in that the donation tax credit can be allocated by the executors of the GRE over a number of tax periods. This is a welcome change which will assist in providing some certainty around tax receipting and has the potential to promote charitable giving further. However, this flexibility is limited to gifts made within 36 months of the date of death – a time period that, in many instances, is too short.
CAGP is proposing that the new flexibility be retained, but is also suggesting two ways in which the linkage to a GRE can be removed. First, executors should be allowed to allocate gifts made by the estate to the designated years when the gift is made and not restricted to a 36-month timeframe. Second, the gift should be allowed to be made by an estate, GRE or otherwise.
Gifts of Publicly Listed Securities, Cultural Property and Ecological Property
The new legislation stipulates that the exemption from capital gains tax on these gifts will now be available only to GRE’s. While this ties the exemption to the nature of the property gifted, CAGP has recommended that any estate, GRE or otherwise, should remain eligible to receive this capital gains exemption at the time the gift is made.
Tax Liability and Life Interest Trusts
The legislation contains a new clause which states that the tax liability on the deemed disposition of assets in a life interest trust at the time of death of the surviving beneficiary is in the estate of the surviving beneficiary. Previously that liability was in the life interest trust. With a charity often named as the beneficiary of a life interest trust, this new rule means that the beneficiary of an estate could be saddled with a tax bill while not receiving the assets. As such, there is concern that donors may be reluctant to name a charity as a residual beneficiary.
CAGP has suggested that the existing rules be kept, but that the residency of such a trust at the time of termination be based on the survivor’s residency at the time of death, or the province they last resided in for Canadian tax purposes.
Tax receipts for charitable gifts
In its submission CAGP expressed an additional concern that has not arisen because of the recent changes, but which would assist in avoiding receipting errors. It should be possible to issue charitable tax receipts to a charity named in a will or trust—whether the charity is a capital beneficiary or whether the amount of gift is set out explicitly. The Income Tax Act be amended to permit receipts in both scenarios where a charitable gift is intended by the testator.
For more detailed information, CAGP’s full submission to the Department of Finance is available at www.cagp-acpdp.org. Given the Canadian government’s track record of creating a legislative environment that is highly favourable to philanthropic giving, CAGP is positive and hopeful of the government’s openness to suggested revisions. While CAGP is focusing its communications and lobbying on this issue from the perspective of charitable organizations, it is also discussing the matter with other associations as well.
As these issues continue to be explored and discussed, the CAGP Government Relations Committee is considering if and when a collective voice added into the mix might be helpful. Stay tuned, and in the meantime, the CAGP is committed to keeping our members and the sector informed over the coming months, sharing advice and best practices on organizational readiness as they emerge.
Ruth MacKenzie is executive director of CAGP. Ruth has more than 25 years of experience in the nonprofit sector working at the grassroots, provincial and national levels. Most recently, she served as the president and CEO of Volunteer Canada and prior to that worked at the Canadian Cancer Society, Ontario Division, and later the Nova Scotia Division, as director of volunteer development. Ruth currently sits on two volunteer boards and serves on the Governor General’s Volunteerism and Philanthropy Advisory Committee. Contact her at firstname.lastname@example.org.