The 2014 Budget proposals have started to take real legislative shape. On August 29th, the Department of Finance released draft legislative proposals for consultation. The proposals mostly affect various aspects of personal, business, and international taxation, but there is also an interesting change being made to the charitable giving world.
The draft legislation carries a few different charity-related changes, but one in particular caught our eye. There is a proposed amendment to widen the definition of “total charitable gifts”, i.e. what is eligible to be claimed for a charitable tax deduction. We were rather surprised to see that the draft legislation includes a black and white reference to the fact that taxpayers can claim gifts made by his or her spouse or common law partner. This same change is also proposed to the definitions of “total ecological gifts” and “total cultural gifts”, which are separate from charitable gifts but essentially refer to charitable gifts of qualifying land and cultural property.
The CRA has been in the practice of allowing this kind of spousal sharing as a matter of policy, but it was never written into the law. Like the usual definition of charitable gifts, it includes gifts made in a year or in any of the five preceding tax years. Of course, the law is careful to provide that gifts can only be claimed to the extent that they are not otherwise claimed by any other individual. What the spousal policy (and soon, perhaps, law) means in practice is that you can ‘give’ your charitable tax credits to your spouse or common law partner. This can be helpful in reducing the tax burden on the higher-taxed partner.
Since spouses and common law partners presumably share their resources to a large extent, it makes sense that a donation made under the name of one individual could reduce the tax paid by whichever one of the couple is more advantageous tax-wise. Up to now, having to rely on CRA policy (which does not always have any direct correlation to the actual law) made this practice possible but perhaps not something to be heavily relied on. With its imminent inclusion in the ink and paper of the Income Tax Act, though, it could not only give individuals a new tax planning tool to play with but also give charities a new pitch for their donors.
The changes are set to apply to the 2016 and subsequent taxation years.