Charity as an Estate Beneficiary in Ontario: Receipts and Tax Credits

If a will leaves money or property to a charity, the estate trustee has two jobs: getting the gift to the charity, and dealing with the tax side. The donation can reduce tax for the deceased person's final return or for the estate, but only if the paperwork and timing are right.

This article explains in general terms how a charitable gift in an estate is paid out, where the donation claim goes, and the limits that apply. Your facts, including the size of the estate and the type of gift, can change the details, so a lawyer or accountant can confirm them.

How a charity gift is paid out

An estate trustee carries out the wishes in the will. That includes winding up the deceased's affairs, paying taxes, bills and other debts, and then distributing the estate according to the will. A charity named in the will is one of the people or organizations who receives its share at that stage.

If the trustee applies for probate, a copy of the application must be sent or given to everyone entitled to a share of the estate before it is filed with the court. A charity entitled to a share is generally part of that group.

• The trustee gathers the assets and pays debts and taxes first.
• The trustee confirms the charity's exact legal name and gift terms from the will.
• The gift is paid, and the trustee keeps the official donation receipt for the tax filing.

Where the donation claim is made

Gifts made after death can be claimed on line 34900 of the final return, or on line 30 of Schedule 11A of the T3 return, with the official donation receipt included. The right place depends on how the gift is structured and which return it suits.

A donation made by a graduated rate estate can be carried back to the deceased's final return if the gift is made within 60 months after death.

What a graduated rate estate is, and why it matters

The estate that arises on a person's death can be a graduated rate estate for up to 36 months after death. To qualify, it must be a testamentary trust, include the deceased's SIN on its T3 returns, and designate itself as the graduated rate estate. Only one estate can hold that status for an individual.

For the longer 60-month carry-back, the estate must meet the graduated rate estate requirements except the 36-month limit, and the donated property must have been acquired on and as a consequence of the death. If the estate does not meet these conditions, the carry-back may not be available, so it is worth checking with an accountant before the gift is paid.

Limits on the claim

On the final return, the donation claim is limited to 100% of the deceased's net income (line 23600). Any excess can be claimed on the previous year's return, subject to the same 100% limit.

• A large gift compared with the deceased's income may not be fully used on one return.
• The prior-year return gives a second chance to use the excess.
• The deceased is treated as having sold all property just before death, and any gain or loss is reported on the final return, not by the beneficiary. How this affects a particular gift depends on the facts, so it is worth reviewing with an accountant.

Timing, deadlines and what to do next

For a death between January 1 and October 31, the final return is due April 30 of the following year. For a death between November 1 and December 31, it is due 6 months after the death. If the deceased, or their spouse or common-law partner, was carrying on a business, the final return is instead due June 15 of the year after death (for deaths January 1 to December 15), although any balance owing is still due by the normal payment date.

A T3 return is due 90 days after the trust's tax year-end, and if the trust ceases to exist, the 90 days run from the date of the final distribution of its assets.

A legal representative who distributes assets before getting a CRA clearance certificate (Form TX19) is personally liable for unpaid amounts, up to the value of the assets distributed. That is why trustees often hold back enough to cover taxes before paying out gifts.

• Read the will's gift to the charity and confirm the charity's legal name.
• Decide with an accountant whether the claim goes on the final return or the T3 return.
• Confirm whether the estate qualifies as a graduated rate estate.
• Keep the official donation receipt with the filing.
• Diarize the filing dates.
• Consider a clearance certificate before final distributions.

Frequently asked questions