The Canada Revenue Agency (“CRA”) has extended its administrative position with respect to the transfer of donation tax credits from one spouse or common law partner to the other.
Charitable donations in excess of $200 entitle an individual to a combined Federal and Quebec non?refundable tax credit of 48.22% of the donations. This matches the top combined Federal and Quebec income tax rate of 48.22%.
There are, however, a number of rules that may restrict the availability of the donation tax credit:
- the amount of the donation that may be used in a taxation year is generally limited to 75% of the individual’s income for the year;
- unused donations may be carried forward for five (5) taxation years;
- the donation limit in the year of death is increased to 100% of income;
- any donation not used in the year of death may be carried back to the year preceding the year of death and the donation limit for this year is also 100% of income; and
- a donation made by will is deemed to be made in the year of death and can also be carried back to the year preceding the year of death.
Although there is no authority in the law to do so, it has long been the CRA’s administrative practice to permit individuals to choose which spouse or common law partner will claim the tax credit for a charitable donation.
This administrative practice has even been extended by the CRA to permit donations made by an individual in his last taxation year or made by an individual in his will and, therefore, deemed to be made in his last taxation year and that could not be used in the individual’s last two (2) taxation years to be transferred to his surviving spouse who could then carry the donations forward for five (5) years.
Finally, in a recent technical interpretation, the CRA stated that it would permit an individual, who has used a portion of a donation and carried forward the balance of the donation to a subsequent year, to transfer the unused carried forward portion of the donation to his spouse for use by her.