CRA recently put out a letter dealing with Canadian taxpayers claiming Canadian charity gifts and the five-year carry forward.
For “most” people, when they donate to a Canadian registered charity, they claim the donation on their tax return the following year. The reason I put “most” in quotation marks is that many people never claim their donation receipts. Also, spouses often pool their receipts, so the real donor is not necessarily claiming the receipt. So even though almost everyone gives to registered charities only about 5 million of 40 million Canadian get any tax relief. As we have discussed elsewhere probably a few thousand people and corporations get most of the tax relief.
Why would someone not claim the donation in a year and then claim it in subsequent years. Generally, you can only reduce your income tax in any year by up to 75% of your donation. Well, some people may either make a big donation, or they just have little income, or they want to pool their donations in a particular year, so a small number of people will claim their current donations in a subsequent year and they can do it over the next five years. CRA in its letter also indicates that the donations should be used “in the order in which they were made” or “on a “first-in, first-out” basis.”
Here is the letter from CRA:
LANGIND E
DOCNUM 2023-1000021E5
AUTHOR Szilagyi, Steven
DESCKEY 25
RATEKEY 2
REFDATE 240123
SUBJECT Total charitable gifts for a particular year
SECTION 118.1(1), (3)
SECTION
SECTION
SECTION
$$$$
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu’exact au moment émis, peut ne pas représenter la position actuelle de l’ARC.
PRINCIPAL ISSUES: Whether a charitable gift must be claimed in the year that the gift was made for purposes of computing the donation tax credit?
POSITION: A charitable gift may be claimed in the year a gift is made or carried forward to a subsequent taxation year within the time frame allowed for in the Income Tax Act.
REASONS: The definition “total charitable gifts” in subsection 118.1(1) allows for the carry-forward of gifts.
XXXXXXXXXX Steven Szilagyi
2023-100002
January 23, 2024
Re: Total charitable gifts
We are writing in response to your request dated November 29, 2023 wherein you requested our comments on the definition “total charitable gifts” of an individual in subsection 118.1(1) of the Income Tax Act (Act).
You provide an example whereby a taxpayer makes a gift of $400 to a qualified donee in the 2023 taxation year. In the example, the taxpayer would like to claim a portion of the gift (e.g., $200) in the 2023 taxation year and claim the remaining portion (e.g, $200) in the 2024 taxation year. You ask whether the definition of “total charitable gifts” in subsection 118.1(1) of the Act permits such an allocation.
Our comments
This technical interpretation provides general comments about the provisions of the Act and related legislation. It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R12, Advance Income Tax Rulings and Technical Interpretations.
Subsection 118.1(3) of the Act provides for a discretionary non-refundable tax credit to an individual for a taxation year computed by reference to the individual’s total gifts for the year. An individual’s “total gifts” for a taxation year is defined in subsection 118.1(1) of the Act by reference to the individual’s “total charitable gifts” (not exceeding the amount determined by the formula contained therein), “total cultural gifts” and “total ecological gifts” as these terms are defined in subsection 118.1(1) of the Act.
Generally, subsection 118.1(1) of the Act defines an individual’s “total charitable gifts” for a particular taxation year as the total of the eligible amount of the individual’s gifts made by the individual, or the individual’s spouse or common-law partner, in the particular year or any of the five preceding taxation years to qualified donees, such as a registered charity.
Moreover, in general terms, subsection 118.1(2.1) of the Act provides that for the purpose of determining an individual’s total charitable gifts, total cultural gifts and total ecological gifts, as the case may be, for a taxation year, no amount in respect of such gifts made in a particular taxation year will be considered to have been included in determining an individual’s charitable donations tax credit until qualifying amounts in respect of such gifts made in preceding taxation years are considered to have been so included. In other words, under subsection 118.1(2.1) of the Act, gifts will be considered to have been claimed in determining an individual’s charitable donations tax credits in the order in which they were made (i.e., on a “first-in, first-out” basis).
Accordingly, for purposes of computing an individual’s charitable donation tax credit for a taxation year, the individual may include charitable gifts made in the five previous taxation years, to the extent such gifts were not included in computing the individual’s charitable donation tax credit of those prior years, and subject to the limits described in section 118.1 of the Act.
For additional information regarding the carry forward of gifts, please refer to Guide P113, Gifts and Income Tax, which is available at our website www.canada.ca/en/services/taxes.html.
We trust our comments will be of assistance.
Yours truly,
Bob Naufal
Manager
Financial Institutions Section
for Director
Financial Industries and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch