The 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. In a technical interpretation released by the CRA on September 13, 2010 (CRA document number 2010-0377811E5), the CRA stated that it would permit a taxpayer who has claimed a portion of a donation in one year to transfer the unused portion of the donation to his spouse for use by her in a subsequent year.
This position is in line with CRA’s current administrative practice. The technical interpretation confirms that although there is no explicit authority in the Income Tax Act to do so, it is CRA’s administrative practice to permit taxpayers to choose which spouse or common law partner will claim the tax credit for a charitable donation, regardless of who actually made the donation. CRA’s policy will also permit donations made by a taxpayer in his or her last taxation year that could not be used in the taxpayer’s last two (2) taxation years (i.e., in the year of death and in the immediately preceding year) to be transferred to his or her surviving spouse who is then permitted to carry the donations forward for five (5) years.
The technical interpretation confirms that when claiming a carryforward, the taxpayer must attach a note to his or her return indicating the year of the return with which the receipt was originally submitted, the portion of the eligible amount being claimed in the current year, and the amount being carried forward. When transferring a carryforward to one’s spouse, CRA states that taxpayers should provide all the relevant details regarding the transfer with their submitted returns to ensure that the claim is allowed and the carry forward balance is adjusted accordingly.
As noted, these are administrative concessions of the CRA and are not provided for in the Income Tax Act. Subject to such concessions, all charitable gifts and related donation credits will be subject to the rules in the Act governing charitable donations. Below is a review of some of the basic rules.
Charitable donations in excess of $200 entitle an individual to a maximum federal non-refundable tax credit of 29% of the value of a taxpayer’s charitable donations in a particular taxation year. The combined federal and provincial rate is a maximum of 39% to 50%, depending on a taxpayer’s province of residence. This is subject to a number of rules in the Act that may restrict the availability of the donation tax credit in a particular taxation year, including the following:
- individuals may claim donations up to a maximum of 75% of the individual’s taxable income in a year (although note that Crown gifts, gifts of cultural property, and ecological gifts are not subject to this 75% limit);
- any unused donations may be carried forward five taxation years; in the year of death, donations up to a maximum of 100% of an individual’s taxable income in that year may be claimed;
- donations not claimed in the year of death may be carried back to the year preceding death and the donation limit for this year is also 100% of taxable income; and
- donations made by Will are deemed to be made in the year of death and can also be carried back to the year preceding death.
CRA’s administrative concessions regarding spousal transfers of donation credits provides additional flexibility in the use of such credits by couples and should be considered in the course of personal tax planning.