TITLE CHARITABLE
DONATIONS
A Summary of
Tax Considerations
OVERVIEW Tax consequences are important in structuringcharitablegifts, sinceproper planning can increase the benefits to the donor. The tax benefits are often a
5. a time limit on the validity of tax
shelter identification numbers; and
6. changes in the test for determining
whether a life insurance policy is
“exempt”.
Author Name James M. Parks
Cassels Brock & Blackwell, LLP
without any limit based on income.
The 75% limit is increased by an
additional 25% of any taxable capital
gain realized by the donor as a result of
making a gift of appreciated capital
major incentive for charitable giving
and should be carefully considered
from the outset.
A gift to a registered charity by an
individual (including a trust) entitles
the donor to a non-refundable tax
credit, i.e. a deduction in computing
tax otherwise payable, whereas a gift by
a corporation entitles it to a deduction
in computing taxable income, as
opposed to a tax credit. These rules are
found in section 118.1 of the Income
Tax Act (the “ITA”) for gifts by
individuals and section 110.1 of the
ITA for gifts by corporations.
BASIC TAX RULES
Individuals
An individual who makes a gift to a
charity is entitled to a credit against tax
otherwise payable. For purposes of this
summary, the references to a “charity”
include generally charities which are
registered by Canada Revenue Agency
(“CRA”), RCAAAs, certain non-profit
housing corporations, Canadian
municipalities, the crown, the United
Nations and certain foreign charities
(including certain foreign universities)
and other non-qualified donees.
property, plus 25% of the amount of
any recapture of capital cost allowance
realized on a gift of depreciable property
(to a maximum of 25% of the lesser of
the capital cost or the fair market value
of the depreciable property).
CRA’s administrative position on gifts
and receipts is set out in IT-110R3
entitled “Gifts and Official Donation
Receipts”. In addition, useful comments
are set out in a number of CRA
newsletters, policy statements and
consultation drafts. These newsletters,
interpretation
bulletins,
policy
statements and other information from
CRA can be viewed on the CRA website
2012 BUDGET PROPOSALS
The March 29, 2012 federal budget
proposes changes in the rules dealing
with the non-profit sector, including
the following:
1. new rules to track gifts made by
registered charities to other qualified
donees that are used for political
activity;
2.a new test for certain foreign
organizations as qualified donees;
3. suspension of receipting privileges
for failure to file complete information
returns;
4.increased and new penalties for
certain charitable donation tax
shelters and promoters;
Where the gift is less than $200, the
federal tax credit is calculated at the
lowest personal tax rate on the amount
of the gift. Where the gift exceeds
$200, the credit is 29% of the amount
of the gift. A comparable tax credit is
also available in calculating provincial
taxes, with special rules applicable in
Quebec.
An individual can claim a tax credit
for a charitable gift of up to 75% of
net income for the year. Any unused
credit can be carried forward for five
years and used to offset taxes in those
years, subject to the 75% limit in each
year. The limit does not apply in the
year of death or the previous year.
Unused credits not applied in the year
of death can be used in the prior year,
at www.cra-arc.gc.ca. There is a section
on the website aimed at charities and
donors, called “Charities and Giving”.
Corporations
A corporation that makes a gift to a
charity is entitled to a deduction in
computing taxable income. However,
the corporation is also subject to the
income limits noted above for
individuals. The corporation can claim
a deduction of up to 75% of its net
income for the year. If the corporation
makes a gift of appreciated capital
property, the limit is increased by 25%
of the taxable capital gain and 25% of
any recapture of capital cost allowance
realized on a gift of depreciable
