CHARITABLE
DONATIONS
A Summary of
Tax Considerations
James M. Parks,
Cassels Brock & Blackwell, LLP
OVERVIEW
Tax consequences are important in for a charitable gift of up to 75% of net income limits noted above for individuals.
structuring charitable gifts, since proper income for the year. Any unused credit The corporation can claim a deduction of
planning can increase the benefits to the can be carried forward for 5 years and up to 75% of its net income for the year.
An individual can claim a tax credit the corporation is also subject to the
donor. The tax benefits are often a major
used to offset taxes in those years, subject If the corporation makes a gift of
incentive to charitable giving and should
to the 75% limit in each year. The limit appreciated capital property, the limit is
be carefully considered from the outset.
does not apply in the year of death or the increased by 25% of the taxable capital
previous year. Unused credits not applied gain and 25% of any recapture of capital
A gift to a registered charity by an
in the year of death can be used in the cost allowance realized on a gift of
individual (including a trust) entitles the
prior year, without any limit based on depreciable property (to a maximum of
donor to a non-refundable tax credit, i.e.
a deduction in computing tax otherwise
income.
25% of the lesser of the capital cost or the
payable, whereas a gift by a corporation
The 75% limit is increased by an
fair market value of the depreciable
entitles it to a deduction in computing additional 25% of any taxable capital
property).
taxable income, as opposed to a tax
gain realized by the donor as a result of
credit. These rules are found in section TYPES OF GIFTS
making a gift of appreciated capital
118.1 of the Income Tax Act (the “ITA”)
property, plus 25% of the amount of any
The following are some basic features
for gifts by individuals and section 110.1
recapture of capital cost allowance and tax consequences of certain types of
of the ITA for gifts by corporations.
BASIC TAX RULES
Individuals
An individual who makes a gift to a
realized on a gift of depreciable property gifts.
(to a maximum of 25% of the lesser of the capital cost or the fair market value of 1. Gifts by Will the depreciable property). 1Gifts are often made by will, as
CRA’s administrative position on gifts “testamentary” gifts. The donor
charity is entitled to a credit against tax
and receipts is set out in IT-110R3 (“testator”) states in a will that on death,
otherwise payable. For purposes of this
entitled “Gifts and Official Donation property is to be given as a bequest or
summary, the references to a “charity”
Receipts”. In addition, useful comments
legacy to a specified charity or a charity
include generally charities which are
are set out in a number of CRA tobechosenbytheexecutors. Thegift
registered by Canada Revenue Agency
newsletters, policy statements and can be cash or property, such as a work of
(“CRA”), registered Canadian amateur
consultation drafts. These newsletters, art or shares. If the testator leaves too
athletic associations, certain non-profit
interpretationbulletins,policystatements much discretion to the executors in
housing
corporations,
Canadian
and other information from CRA can be choosing a charity or the amount of the
municipalities, the crown, the United
viewed on the CRA web site at www.cra-
gift, CRA may allege the gift is made by
Nations and certain foreign charities
arc.gc.ca. In the spring of 2008, CRA
the estate and not deemed to be made in
(including certain foreign universities).
substantially revised its web site. There
the year of death.
Where the gift is less than $200, the
is a section on the web site aimed at
Otherwise, the testator is deemed to
federal tax credit is calculated at the
charities and donors, called “Charities
lowest personal tax rate on the amount of
have made the gift immediately before
and Giving”.
the gift. Where the gift exceeds $200,
the date of death. Therefore, in the
Corporations
the credit is 29% of the amount of the
terminal return for the year of death, a
gift. A comparable tax credit is also
A corporation that makes a gift to a tax credit is available in computing tax
available in calculating provincial taxes, charity is entitled to a deduction in otherwise payable. Any unused tax
with special rules applicable in Quebec.
computing taxable income. However, credits in the year of death can be carried
