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Reconciling Canadian Charitable Giving for US Persons |
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The Canadian tax benefit from charitable giving can exceed that available in the United States, which limits charitable deductions to no higher than 50% of adjusted gross income. This differential can unexpectedly result in a higher charitable gift tax benefit (i.e., a non-refundable tax federal and provincial tax credit) in Canada than in the US (i.e., an itemized deduction against adjusted gross income) with unexpected US tax liability resulting. The additional US tax arises because reduced Canadian tax paid means less foreign tax credit for US purposes. Further complicating matters are increased limitations in Canada for donations of capital and depreciable property, including investment securities. Gifts of these items are also treated as taxable dispositions receiving either capital gain or ordinary income treatment in Canada. In the US, contributions of capital gain and ordinary income property are limited to a maximum deduction of 30% of adjusted gross income but the limitation can be as low as 20%. Donations of appreciated property do not result in income recognition in the US, however. Canada does not require that a taxpayer claim the entire eligible amount of gifts made in a year on the corresponding tax return. Rather, the amount of eligible gifts reported is at the taxpayer’s discretion. Eligible amounts can be carried forward and claimed on later returns for up to five years. Gifts from earlier years must be claimed before current gifts.
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