2020-0837621C6 STEP 2020 – Q8 - TOSI and Donations

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: Whether an individual whose only income is subject to the TOSI can apply the charitable donation tax credit to reduce their tax payable pursuant to the TOSI.

Position: No.

Reasons: Based on subsection 120.4(3).

Author: Witteveen, Tobias

Section: 120.4(3)

2020 STEP CRA Roundtable – November 26, 2020

QUESTION 8. TOSI and Donations

An individual has a large taxable capital gain which will be considered split income.  The individual intends to make a substantial donation with the proceeds from the sale.  Assume that the individual does not otherwise have any income other than this taxable capital gain.

Does CRA agree that in these circumstances the amount of the donation cannot be taken as a tax credit to reduce the amount of tax calculated under TOSI?

CRA Response

Subsection 120.4(3) of the Income Tax Act (the “Act”) ensures that the Part I tax payable by a specified individual is not less than the individual's split income for the year multiplied by the highest individual tax rate for the year reduced only by the dividend tax credit (section 121 of the Act) and the foreign tax credit (section 126 of the Act) available in respect of amounts included in that split income and the disability tax credit (section 118.3 of the Act).  Therefore, the charitable donation tax credit (section 118.1 of the Act) cannot be applied to reduce a specified individual’s Part I tax payable that arises as a result of the application of the tax on split income.


Tobias Witteveen

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