11 January 2012 External T.I. 2011-0410641E5 - Ordering of tax credits and charitable gifts

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: 1. When claiming a tax credit pursuant to subsection 118.1(3), can an individual accumulate charitable gifts made over five consecutive taxation years and claim them together with charitable gifts made in the sixth consecutive year? 2. Can an individual reduce the amount of charitable donations tax credit claimed in any particular year in order to maximize a tax credit claimed under section 118.62 or 121?

Position: 1. Yes. 2. Yes.

Reasons: 1. The "total charitable gifts" of an individual for a taxation year generally include gifts made by the individual in that year, or in any of the five immediately preceding taxation years, to the extent that the gifts were not included in a subsection 118.1(3) claim for a prior taxation year. 2. The amount of the credit available under subsection 118.1(3) is based on an amount actually claimed by the taxpayer, which is not to exceed the amount determined by formula.

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					2011-041064
					Robert Demeter, CGA
January 11, 2012			(613) 948-5274
	

Dear XXXXXXXXXX :

Re: Ordering of tax credits and charitable gifts

This is in reply to your email of June 16, 2011 in which you requested our comments on the tax credit available to an individual in respect of charitable gifts pursuant to subsection 118.1(3) of the Income Tax Act.

In particular, you have asked whether charitable gifts made by an individual over a series of five consecutive taxation years may be accumulated and claimed together with any charitable gifts made in the sixth consecutive year. You have also asked whether an individual may reduce the amount of charitable gifts claimed in any particular year in order to maximize the individual's tax credit for student loan interest under section 118.62, or a dividend tax credit under section 121.

Our Comments:

Subsection 118.1(3) provides a tax credit to an individual for a taxation year equal to an amount claimed by the individual in respect of the individual's "total gifts" for the year, and not exceeding the amount determined by the formula contained therein. Subsection 118.1(1) defines the "total gifts" to be based on a separate calculation that includes an amount determined with reference to the individual's "total charitable gifts" for the year. Under proposed legislative amendments, the "total charitable gifts" of an individual for a taxation year include the total of all amounts each of which is the eligible amount of a gift (other than a gift included in "total Crown gifts", "total cultural gifts", or "total ecological gifts") made by the individual in the year, or in any of the five preceding taxation years, to a qualified donee, to the extent that the amounts have not been included in determining a tax credit claimed under subsection 118.1(3) in a prior year.

In answer to your first question, pursuant to subsection 118.1(3), charitable gifts made by an individual in a particular taxation year that are not claimed in the year of donation may be carried forward for up to five taxation years. Accordingly, it is possible for an individual to accumulate charitable gifts made over a series of five consecutive years to the extent that the gifts were not included in determining a charitable donations tax credit claimed in a prior year, and to claim such gifts with any charitable gifts made in the sixth consecutive year, subject to the limitations and restrictions found in section 118.1.

In response to your second question, and as you noted in your request, section 118.92 provides an ordering of application of certain legislative provisions for the purpose of determining the Part I tax payable by an individual, including a requirement that section 118.1 be applied before sections 118.62 and 121. However, as previously outlined, the tax credit pursuant to subsection 118.1(3) is calculated based on an amount claimed by the individual in respect of the individual's "total gifts" for the year. Therefore, the individual may claim an amount that is less than the total charitable gifts made in the year, resulting in a tax credit that is less than the maximum credit otherwise available in respect of the individual's "total gifts" for the year. This may occur in situations where the individual seeks to maximize the tax credits claimed in respect of sections 118.62 and 121 for the year.

We trust that these comments are of assistance to you.

Yours truly,

Jenie Leigh
Section Manager
for Division Director
Financial Industries Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch