Spousal Sharing of Donation Tax Credits

Authored by Nevena Belovska, Associate Director of Legal Affairs

Certain changes in Budget 2014 have changed terminology and processes related to when and how donation tax credits can be shared between spouses.

Gifts Made During Life

Prior to 2016, the eligible amount of a gift[1] could be allocated between spouses[2] in the most advantageous way to them. Although the definition of “total charitable gifts”[3] has been amended, the CRA continues to allow a donation tax credit to be split between two spouses in a way that is most beneficial to them for 2016 and subsequent tax years, as long as it fulfills the other basic requirements under the “total charitable gifts definition”. This has been confirmed by a recent CRA technical interpretation.[4]

Gifts Made On Death

There has been a significant change with respect to spousal sharing of estate donation tax credits, however. Prior to 2016, resulting tax credits of a gift made by will could be claimed in the donor’s last living return or the preceding year to the extent that excess credits remain. CRA’s administrative position allowed these credits to be claimed by the surviving spouse, assuming that a spousal or common-law relationship existed at the time of death and the donation would otherwise qualify as a gift for the purposes of the charitable donations tax credit.

However, as a result of Budget 2014, these rules have changed for gifts after 2015. Under the new rules, gifts made by an individual on death[5] will be deemed to be made by an estate that arises as a consequence of death. This estate is called a graduated rate estate (“GRE”) and it exists for 3 years from the date of death. Any gift made under a GRE can be allocated to the individual’s last two living years or to the estate in the year of the gift or a preceding year for a total timeframe of five years.[6] However, the new rules are more limited in scope and no longer allow the surviving spouse to claim gifts made by the deceased spouse’s graduated rate estate. Therefore, surviving spouses are no longer able to claim credits in respect of gifts made by the estate of their spouse or common law partner.[7]

References

[1] The eligible amount of a gift is the amount for which a charity may issue an official receipt. It is the amount by which the fair market value of the property that is the subject of the gift exceeds the amount of the advantage, if any, in respect of the gift. For more information, see Chapter 11: Split-Receipting of the Charities Handbook, online: https://www.cccc.org/members_ch_show/chapter_11/eligible_amount/ (member access only)

[2] And common-law partners

[3] ITA, s. 118.1(1)

[4] 2015-0590501E5 (November 11, 2015)

[5] Whether by will, an estate, or a designated gift

[6] Being the last two taxation years of the individual and the three years of the GRE, beginning at the death of the individual

[7] See CRA technical interpretation, 2014-0555511E5 (January 27, 2015)