| 19(1) | File No. 5-9275 |
| A.W. Larochelle | |
| (613) 957-2140 |
February 6, 1990
Dear Sirs:
Re: Corporate Donations
This is in reply to your letter of November 17, 1989 concerning funds and equipment you are proposing to donate to the various organizations referred to in paragraph 1 of your letter.
Since you have not provided any details regarding the status of the organizations referred to and since your query appears to be more of a general nature our comments will cover the subject matter very generally.
The most common deduction allowed under the Income Tax Act (the "Act") for donations is a gift made to a "registered charity" as defined in subsection 248(1) of the Act.
Under paragraph 110.1(1)(a) of the Act a corporation is permitted to deduct in computing its taxable income for a taxation year the amount of gifts made in the year to, for instance, registered charities, registered Canadian amateur athletic associations and Canadian municipalities, etc.
The maximum deduction allowable under the above paragraph for any taxation year is 20% of the corporation's income for that year. If gifts are not deductible because of this limitation the portion not deducted may be carried forward and deducted in one of the five subsequent years. The total of donations carried forward to a year and current donations made in that year cannot exceed the 20% limit referred to above.
If payments made to charitable organizations can be shown to have been made to encourage or maintain business which would otherwise be lost, such payments may in certain circumstances be deducted from income as a business expense under paragraph 18(1)(a) of the Act. A gift made for such purposes has been ruled not to be a gift within the meaning of paragraph 110.1(1)(a) and is therefore not subject to the 20% maximum provided therein. In this regard you may wish to refer to the following court cases where this matter was discussed:
a) Impenco Ltd. v. MNR, 88 DTC 1242.
b) Olympia Floor and Wall Tile Co. (Quebec) Ltd. v. MNR, 70 DTC 6085.
In answer to your question regarding receipts to be obtained for any donations made we would refer you to paragraphs 17 and 18 of the enclosed Interpretation Bulletin IT-110R2. This bulletin and the special release thereto may also be helpful in resolving other concerns you may have in mind regarding the various donations you wish to make. Also enclosed is the Department's Interpretation Bulletin IT-297R dealing with "Gifts in Kind". Paragraphs 2 and 3 thereof should answer your question regarding the value to be used when equipment from stock is donated or other related questions.
Should you require further information regarding registered charities you may call our toll free number in Ottawa at 1-800-267-2384.
If we can be of any further assistance with respect to technical interpretations of the provisions dealing with corporate donations please feel free to write us again.
Yours truly,
A. Glen Thornleyfor DirectorBusiness and General DivisionSpecialty Rulings DirectorateLegislative and Intergovernmental Affairs Branch