Charitable tax credits flexible after death

The income tax act provides that a charitable gift gives rise to a donation tax credit in the calendar year in which the gift was made. And, to the extent the donation tax credit is not claimed in that year, it may be carried forward and claimed in any of the donor’s five succeeding taxation years.

However, there’s only one case when a donation tax credit can be carried backward. If your client donates money and dies the same year, or if he dies and donates money in his will, the Income Tax Act allows the unused tax credit to be used in the immediately preceding taxation year. It does this by deeming the portion of the gift made in the year of death, and for which no donation tax credit was used in that year, to have been made in the prior year.

That same unused credit can also be carried forward, even though the taxpayer has died, provided he or she is survived by a spouse or common-law partner.

Administratively, the CRA treats a donation made by either partner as if it had been made by the family unit. The name on the tax receipt doesn’t matter.

Charitable giving stats

• $8.3 billion total charitable donations, 2010
• $260 median per person donation, Canada, 2010
• Nunavut The province or territory with the highest median per-person donation ($470), 2010
• 2.4% The core non-profit sector’s share of Canadian GDP, 2008

An example

Suppose Rick, who died March 1, 2012, made a charitable bequest in his will. And let’s assume the associated donation tax credit is large enough to reduce his 2012 tax liability to nil, but there’s still some tax credit left over.

In that case, it can be carried back to be applied against this 2011 tax liability. But what if there’s still some unused tax credit available after this happens? Rick’s surviving common-law partner, Samantha, can use that unused donation tax credit for her 2011 taxation year. If there are still leftover donation tax credits, she can carry them forward for as many as five taxation years.

If Rick and Samantha were no longer in a common-law partnership (as defined in the Income Tax Act) at the time the donation was made, or deemed to have been made, Samantha would not have been able to use any part of the associated tax credit.

What if Rick and Samantha had been married, but separated at the time of the donation? Would the CRA still be willing to treat Rick’s donation as a gift by the family unit?

This is not an issue on which the CRA has made any public pronouncement. But if Rick had made the charitable donation before separating from Samantha, the two of them could have negotiated the sharing of the resulting donation tax credit in their separation agreement.

Types of charities canadians trust

• Hospitals (88%)
• Children/children’s activities (86%)
• Health prevention/health research (85%)
• Education (80%)
• Social services (77%)
• Protection of animals (73%)
• Protection of the environment (72%)
• Churches (67%)
• Other places of worship (65%)
• Arts (63%)

Source: Statistics Canada