Prepared by:
Richard Domingue
Economics Division
August 1995
Revised July 1996






   A. Brief Historical Overview

   B. Tax Treatment of Donations by Individuals

      1. Tax Credit for Charitable Donations

      2. Donations of Appreciated Property

      3. Gifts to the Crown

      4. Bequests to Charities

   C. Tax Treatment of Donations made by Corporations

   D. Tax Classification of Charities and Non-Profit Organizations






The federal government and some provincial governments are having to deal with serious budgetary constraints. With discretionary financial resources shrinking, they are being forced to reassess the rationale for and appropriateness of their expenditures.

A government may spend directly by financing a variety of programs; it may also spend indirectly by forgoing a portion of its revenue. Expenditure programs that operate through the tax system are called "tax expenditures." One such expenditure concerns donations to charitable organizations.

The federal government permits individuals and corporations to reduce their income tax by allowing them a credit for donations to charitable organizations or by allowing them to deduct such donations from income. Thus, taxpayers and corporations may claim a portion of the billions of dollars that they give to the 71,000 charities that exist in Canada.(1)

Basing its estimate on tax data from Revenue Canada, Statistics Canada reports that, in 1993, 5.5 million taxpayers gave gifts to charities that amounted to $3.5 billion.(2) In 1992, total donations came to $3.2 billion. The Canadian Centre for Philanthropy estimates that in 1993 $8.2 billion was donated by individuals and $1.2 billion by corporations.(3)

The difference between these two estimates can be explained by the fact that some taxpayers give to charities without requiring a receipt or claiming the tax credit to which they are entitled. For every $100 donated by individuals, receipts are issued for only $80, of which only $43 is used in calculating the tax credit for charitable donations.(4) In total, these gifts cost Canadian taxpayers more than $800 million in lost revenue. In fact, as we shall see later, the amount came to over $870 million in 1992, and $893 million in 1993.

By exhibiting such fiscal generosity, the federal government is sacrificing revenue, even though sources of revenue are becoming scarcer. At a time when the government is reviewing all its programs, withdrawing from some of its activities and even going so far as to abandon the production and provision of some public goods and services completely, it must not allow the tax expenditure associated with charitable organizations to escape public scrutiny.

This document examines the charity sector in the budgetary context, discusses the economic factors that motivate philanthropists and examines the tax treatment of charitable donations. A series of tables is appended which provides a brief statistical portrait of the flourishing charity "industry."


It is important to examine the tax treatment of charities to make sure that it is sufficiently generous, is not too expensive and matches the growing needs of the people of Canada. The challenge is all the greater since charitable organizations could well help solve the budgetary problems facing governments by compensating for harsh budget cuts. In 1993, as can be seen in Table 5 (see appendix), 60% of charities' revenue (or nearly $49 billion) came from various levels of government. This figure includes the amounts received by hospitals ($17 billion) and by educational institutions ($16.5 billion).(5) The Canadian Centre for Philanthropy has calculated that donations would have to rise by 5.8% for every 1% reduction in government subsidies and transfers in order for available funds to remain at their present level.

The billions of dollars in donations from corporations and individuals must be viewed as moneys invested in the community. In many respects, the public goods and services supplied by charities have become especially important or even essential, because of the financial situation of present governments.

As stressed above, because of the shortage of funds, governments are increasingly withdrawing from the provision of public services. It is quite possible that in the near future charities will be required to take the place of governments, which are trying to do more, and do it better, with less. At a time when attempts are being made to reinvent government, it should perhaps be recognized that social services could be provided much more efficiently by charitable organizations. It could be that communities and local agencies are in a better position to assess and meet these needs economically than government employees working in a capital city far removed from the people they serve.

Charitable donations have considerable multiplier effects. Charities say that, by allowing donations to be deducted from income tax, governments probably get more in return than it costs them in tax expenditures. Thus stopping the tax credit for charitable donations would probably result in losses greater than the amounts taxpayers currently receive through the tax credit. As the Canadian Society of Fund Raising Executives told the Finance Committee:

All Canadians can and do find benefits in this arrangement. Governments benefit when charities produce programs and services that would not be offered otherwise. Canadians benefit when the community is enhanced and protected at a minimum cost. Everyone benefits when thousands of jobs are produced at a low cost within the charitable sector.(6)

The Canadian Fund Raising Executive Institute noted:

The [charitable gift] tax credit is not a loophole. It is an incentive for Canadians to invest in the community through their government. It does not cost the government money. It saves the government money. ... Our charities ... receive 70% of their funding from governments and individual and corporate donations. Any undermining of this support at this time is inappropriate. ... The result would be devastating for many of the country's charities and, consequently, the people they serve.(7)

In its final report, which followed on the pre-budget consultations in the fall of 1994, the Committee stated, "without the generosity and commitment of the voluntary sector, even more responsibility and cost for services would fall on governments."(8) The Committee accordingly asked the government to conduct an in-depth study of the tax incentives available to charitable, non-profit and cultural organizations. The Committee's request echoed the February 1994 budget, which stated that "[t]he government will continue to monitor the tax treatment of donations to registered charities to ensure that the tax system is as effective as possible in its support of the voluntary sector."(9)

The federal government reiterated this commitment in the 1996 budget: "In the coming year, the Department of Finance will examine ways of further encouraging charitable giving and charitable activities... Ways of ensuring that increased government support to charities is effectively translated into activities of direct benefit to Canadian society will be examined."(10) From this it seems clear that the federal government aims to encourage charitable donations while ensuring that society as a whole benefits from the associated tax relief.


Contrary to what many think, people are not concerned solely about their own economic welfare; in fact, to maximize their level of utility (i.e. their economic welfare), they also take the welfare of their fellow citizens into account. Just as they are prepared to spend money to feed their children, they are also prepared to make sacrifices to provide for those who are less well off. Because they feel it is important to have access to culture and literature, for example, they will give money to museums, libraries or literacy organizations.

Most people are concerned about the economic welfare of others. An altruistic person will give to others if the reduction in his or her wealth is at least offset by the satisfaction of sharing. Accordingly, a gift does not reduce the level of utility, since improving the lot of others will increase the general level of economic welfare. The richer a person is, in relative terms, the more he or she may be prepared to give something up in order to meet other people's needs. In fact, the dollar that a wealthy individual gives away has less marginal value to that person than it has when made available to those who are less well off.

The income tax system influences altruistic behaviour as follows: the tax credit for charitable donations is designed to encourage giving. The donor is paying less of the contribution, since all taxpayers are forced to pay part of it. A resident of Ontario who gives $100 to a charity receives a federal credit of $17 and a provincial credit of $9.36 (or $17 multiplied by 0.58). The credits also reduce the federal and provincial surtaxes payable.

For corporations, creating close links with a charity enhances their corporate image, because they are perceived as having a social conscience. The gifts made by corporations, however, generally owe more to marketing than to altruism. This explains the sometimes more favourable tax treatment they receive with respect to gifts to charity. In fact, some judgments have held that, because such gifts may be made for business reasons, they may be deducted from business income, regardless of the generally applicable limits. (For more information, see the section entitled Tax Treatment of Donations made by Corporations.)


   A. Brief Historical Overview

Charitable donations have been taken into account in computing taxable income since income tax was first introduced in Canada in 1917. In 1950, because there was concern that some organizations receiving charitable donations might not be devoting an adequate share of such donations to charitable activities, the federal government introduced a number of tax rules. In 1966, charities were asked to file returns on their activities and to register with the Minister of National Revenue so that the receipts they issued could be checked.

Despite the 1971 tax reform, the federal government did not propose new legislation on charities until a Green Paper came out with the budget of 23 June 1975. On 25 May 1976, several new provisions governing charities were announced, to come into effect on 1 January 1977 (section 149.1 of the Income Tax Act). Charities were required to spend at least a minimum amount on their charitable activities and to file public information returns, while the concepts of qualified investments, private foundations, public foundations and charitable organizations were introduced.

In June 1987, following the publication in 1983 of a working paper by the Minister of Finance and the 1987 White Paper on Tax Reform the government introduced new provisions governing the tax treatment of charitable donations. Prior to 1988, a taxpayer deducted from income an amount equal to his or her charitable donation. All taxpayers were entitled to a deduction of $100 without filing receipts, whether or not they had made donations to a registered charity. With the introduction of the new provisions, the government replaced the deduction with a two-tier non-refundable federal tax credit. A federal tax credit of 17% was made available on the first $250 and a credit of 29% for any donations exceeding that amount; the taxpayer can deduct these tax credits from the tax payable. Thus, since 1988 the tax system has treated charitable donations differently by making the value of the credit dependent on the amount of the donations rather than a percentage of the donor's income.

In the budget of February 1994, the government made the tax treatment of charitable donations more generous. To encourage people to make charitable donations, it reduced to $200 (from $250), the point at which the 29% tax credit first applies, thereby slightly increasing the tax assistance for charitable donations. According to the Department of Finance, the credit will cost $15 million more per year in forgone income tax.

In the 1996 budget, the government announced a series of measures affecting the tax treatment of charitable donations. The annual ceiling on eligible donations has gone from 20% of net income to 50%, or 100% in the case of bequests. Where appreciated capital property is donated, the 50% ceiling has been further increased by 50% of the resulting taxable capital gain.

   B. Tax Treatment of Donations by Individuals

There is no doubt that the tax treatment of charitable donations has a significant impact on generosity. As was noted earlier, by granting a tax credit for charitable donations, the government divides part of the cost of the donation among all taxpayers and at the same time reduces the cost to the donor; however, the tax system imposes certain limits and conditions of eligibility.

      1. Tax Credit for Charitable Donations

As noted above, donors are entitled to a non-refundable 17% federal tax credit on the first $200 to a registered charity and a 29% tax credit on any donations above that amount. Donations can now represent up to 50% of a taxpayer's net income; this new ceiling is designed to encourage larger donations.

For taxpayers in all provinces except Quebec, which collects its own taxes, the combined rate of the federal and provincial credit is approximately 27% on donations of less than $200 and approximately 47% on any amount claimed above this figure. Donations exceeding the ceiling of 50% of net income may be carried forward over a maximum period of five taxation years. Furthermore, either spouse may claim a tax credit for a contribution made by the other spouse. Lastly, the individual may elect not to declare contributions in the year they are made but to save them up over a period not exceeding five years in order to accumulate a larger amount and thereby maximize the tax credit.

To be eligible for the credit, donations must be made to one of the following: (1) a Canadian charity registered under the Income Tax Act;(11) (2) an amateur athletic association; (3) a housing corporation providing low-cost housing; (4) a Canadian municipality; (5) the United Nations or its agencies; (6) certain universities outside Canada; and (7) certain charitable organizations outside Canada.

To encourage Canadians to donate cultural property and to ensure that such property and works of art remain in Canada, the Act provides for more generous tax treatment for these. First, when cultural property is given to institutions recognized by the Cultural Property Export and Import Act, the donors are entitled to a tax credit based on fair market value (established by the Canadian Cultural Property Export Review Board (section 118.1(10) of that Act); they do not have to add the deemed capital gain to their income. Second, these donations are not subject to the 50% of net income limit, and may be carried forward over the following five years if the whole tax credit is not used during the year of donation. In order to qualify, gifts of art must be made to registered Canadian institutions in the arts. It is not necessary to be a charitable organization or a Crown agent to qualify as an institution designated by the Canadian Cultural Property Export Review Board.

      2. Donations of Appreciated Property

Because of the tax on capital gains, taxpayers who under the old system donated appreciated property (land or buildings, for example) to a charity sometimes found themselves in a situation where they were unable to claim tax credits for the whole amount of the taxable capital gain (capital gains are 75% taxable). This meant that it was better for taxpayers to limit the amount they donated in the form of property, in order to minimize their tax burden and the problem of cashflow as far as possible. This state of affairs was not beneficial for charitable organizations.

The government has therefore increased the tax credit for donations of appreciated property to compensate for the taxable capital gain. In addition to the eligible donation ceiling of 50% of net income (net income includes the taxable 75% of any capital gain) taxpayers can now also claim 50% of the taxable capital gains resulting from the donation of appreciated property included in calculating the donor’s taxable income.(12) Donors are thus entitled to a maximum charitable donation credit for 100% of the taxable capital gain (i.e. 75% of the gain). The new system eliminates the disadvantage that used to be associated with donations of appreciated capital property.

The new tax credit includes the entire amount of taxable capital gains, but the credit will not always be equal to the market value of the donation. In certain circumstances (for example, where taxable income is not high while the value of the donation is very high), taxpayers will not always be entitled to a tax credit in that year that represents the total market value of appreciated capital property.(13) Taxpayers should therefore calculate the maximum tax credit for which they are eligible and decide whether it would be preferable to spread out their claim for the donation over five years, in order to maximize their tax credit.

It should be noted that very few taxpayers are in this situation, and that taxpayers always have the choice of adjusting how they make their donations in order to reduce their tax liability.

      3. Gifts to the Crown

Where a taxpayer makes a gift to the government of Canada, to a provincial government or to one of their agents (such as a government foundation), he or she is entitled to donate up to 100% of net income. The whole of the gift is accordingly added to the sum on which the tax credit is calculated. The tax credit in a given year may not, however, exceed the total amount of tax payable. In such a case, any surplus not claimable may be carried forward over the following five taxation years, as can a credit that the individual does not wish to use immediately.

Some provinces, such as Ontario and British Columbia, have established charitable foundations acting for the Crown to which donors may make direct gifts. Donations to these foundations entitle the donor to the most favourable tax treatment. Consequently, it is in the interests of individuals wishing to donate more than 20% of their net income to make their donations to foundations rather than direct to charities.

      4. Bequests to Charities

Bequests are considered as being made during the year of the donor's death. The 20% ceiling on bequests has been raised to 100%. If bequests exceed the ceiling of 100% of net income for next year, they may be carried back to the preceding year and a credit may be deducted from the tax payable for the last taxation year. Under the old system, there was a deemed disposition of all property on death (except for gifts made to a spouse or in respect of trusts created for the spouse's benefit); the value of charitable donations could be very high and easily exceed the 20% limit, thus not earning full tax credit. Consequently, in such cases, it was very much in the donor's interest simply to make the donation to a Crown foundation or to give to the registered organization during his or her lifetime (thereby maximizing the tax credit for charitable donations) rather than waiting until he or she died. With the new 100% ceiling, the government is facilitating contribution planning in situations where the value of such contributions is significantly more than income in the year of death and the preceding year.

As we saw earlier, a bequest of certified cultural property made to designated institutions located in Canada is not deemed to be a gift triggering a deemed capital gain; for that reason no limit is set on the value of such bequests.

   C. Tax Treatment of Donations made by Corporations

Because governments are becoming less and less generous, charities are relying more on individuals and corporations. For corporations, such gifts offer the advantage of improving corporate image at very little cost.

As in the case of individuals, the maximum amount of charitable donations for which a corporation can receive tax credit during a year may now not exceed 50% of its taxable income. However, the rules governing tax deductions allow corporations to deduct the entire charitable donation from taxable income, rather than receiving a tax credit. In fact, when it is possible to describe the gift as being a payment made for business reasons, there is no limit on the amount the corporation may deduct from business income. The decision in Olympia Floor & Wall Tile (Quebec) Ltd. v. M.N.R. allows the full deduction if the gift is viewed as being an operating expense. Some people, like Léo-Paul Lauzon of the Université de Québec à Montréal object to this treatment and feel that nothing described as an entertainment expense, philanthropic expense or assistance of any kind should be tax-deductible for corporations.

   D. Tax Classification of Charities and Non-Profit Organizations

Status as a registered charity brings two major benefits. First, it authorizes the organization to issue official receipts that enable individuals to reduce the tax payable on their income and corporations to reduce their taxable income. Second, it exempts the organization from paying income tax under Part I of the Income Tax Act.

To be eligible for registration, the charity must have been created for charitable purposes, must be located in Canada and may not pay out its income for the personal benefit of its members. This last condition does not prevent the organization from paying for services rendered with respect to normal operations. The conditions of eligibility provide that the organization's activities must confer a tangible benefit on the public (for example, an organization created to cover the travel expenses of a sick child going to the United States for treatment would not be recognized as a charity because it would lack the essential element of public benefit). Nor can the clients benefiting from the activities be limited to a narrow group, for example an association in which membership is limited to certain people.

The courts have defined four major categories for charitable purposes. In order to fall into one of these categories, an organization must carry on at least one of the following activities: (1) relief of poverty (e.g. food banks and organizations that provide disadvantaged persons with clothing or furniture), (2) the promotion of religion (the organization must have an element of theistic worship in order to be recognized, and the activities must serve the common good), (3) the promotion of education (the activities must include a substantial educative aspect or be geared to the development of the mental faculties or to advancing a branch of knowledge (e.g. museums) and (4) other activities of benefit to the community, defined by the courts (e.g. environmental protection, child welfare, volunteer firefighters, the prevention of cruelty to animals, the relief of suffering associated with aging).

The Act recognizes two kinds of registered charities: charitable foundations and charitable organizations. The latter, which account for more than 90% of the 71,000 registered charities, are those that carry on their own charitable activities, have more than 50% of their directors dealing at arm's length with the other directors (they must not be related by blood, marriage, common law marriage, a business association or a close affiliation such as a business partnership or an employer-employee relationship), and receive at least 50% of their funds from donors dealing at arm's length.

Foundations, on the other hand, are charities used primarily to fund other recognized charitable activities; they may be public or private, the distinction being based on the relationship between the directors and the nature of the funding. A foundation is public if more than 50% of its directors deal at arm's length with the other directors and if at least 50% of its funds come from donors with whom it deals at arm's length. A foundation is private if 50% or more of its directors are persons not dealing at arm's length with other directors or if it receives more than 50% of its funds from a single person or from a group of people who do not deal with each other at arm's length. Private foundations may not be involved in commercial activities, while public foundations and charities may carry on only commercial activities that relate to their mandate or are directed by volunteers.

In order to protect taxpayers, to ensure that most of the funds are used for charitable purposes, to discourage inappropriate accumulation of capital, and to keep administrative expenditures to a reasonable level, the Act requires that every charitable organization spend a minimum amount; this is its disbursement quota, within the meaning assigned to that expression by section 149.1(1)(e) of the Act. Gifts for which no receipt has been issued are not subject to this requirement. Calculation of the quota will vary, depending on the type of charity involved. The Appendix to this paper explains how the formula applies to charitable organizations and to public and private foundations. Most organizations need to take into account only the value of the receipts issued for donations during the previous year. Expenditures that qualify in calculating the disbursement quota must be used directly for a charitable activity (including wages and purchases of materials or goods, for example, but excluding purely administrative costs such as fundraising campaigns or legal or accounting costs).

A charitable organization must devote not less than 80% of the amounts for which it has issued receipts to its charitable activities, excluding gifts received in the form of bequests, gifts subject to a stipulation that the property be held for not less than ten years and gifts received from other charities.

A public foundation must devote the total of the following items to its charitable activities: (a) the amount that would be its disbursement quota if the foundation were a charitable organization, plus (b) 80% of all moneys it receives from other registered charitable organizations, excluding any designated gifts, plus (c) a sum calculated on the basis of the average value of the portion of its property that was held during the preceding 24 months and was not directly allocated to charitable activities or administrative purposes. A private foundation calculates its disbursement quota in the same way as a public foundation except that the second factor is equal to 100% of all the amounts the private foundation has received from other registered charities.

Organizations that carry on political activities, in whole or in part, are not charities. For example, promoting the objectives of a political party, promoting a political doctrine, persuading the public to adopt a specific point of view on a major social issue or attempting to bring about changes in legislation or government policy would all prevent registration. The Act expressly prohibits any charitable organization from carrying on partisan political activities. Thus, a charity may not give financial or other support to or oppose a political party or a candidate for political office. An organization established for charitable purposes may, however, become involved in non-partisan political activities that directly contribute to the attainment of the organization's objectives, as long as it does not devote more than 10% of its resources to those activities.

An organization will be registered only if it fully satisfies other requirements of the Income Tax Act. For example, organizations are required to file an information return with the relevant attachments and financial statements within six months of the end of their fiscal year. A charitable organization must also keep books and records.

An organization that does not meet the requirements for registered charity status may in certain cases be eligible for registration as a non-profit organization under the Income Tax Act. For example, fraternal societies that provide services to the needy (such as Clubs Richelieu or Rotary Clubs), advocacy groups or athletic associations are not eligible for registration. While such organizations are not subject to most taxes, they may not issue official receipts for tax purposes.


The federal government is going to find it more and more difficul to make the tax system more generous to charities. The recent amendments to the Income Tax Act alone will cost the federal government a further $20 million. In addition to the $5.3 billion paid out to charitable organizations direct, the reduction in tax receipts resulting from the tax credit for charitable donations cost the government almost $1 billion. The millions that donor corporations are allowed to deduct must be added to this. There is no doubt that with such substantial amounts of money at stake, the slightest abuse might engender enormous costs. It is therefore necessary to ensure that the controls in place are effective.

Tax administration for charitable organizations may have to be improved by emphasizing transparency, simplicity and fairness. For example, Revenue Canada should perhaps review the measures governing revocation of registrations, commercial activities, late filing of returns, penalties for non-compliance, the validity of receipts issued and access to public information returns prepared by these organizations.

Because corporations can benefit from very generous tax treatment, the government could also perhaps review the rules that permit them to deduct donations. Léo-Paul Lauzon told the Finance Committee:

There is a whole host of expenditures that are philanthropic in nature. ... These are expenses that corporations can deduct from their income tax. Corporations act as patrons of the art [sic] and to a certain extent influence society's choices along the lines that best meet their own private interests, all the while using public money. Governments must put a stop to that. It's a policy that makes no sense whatsoever. What it boils down to is corporations being entitled to spend public money at their own discretion without having to account for them [sic] in any way. ... [T]his is my recommendation: ... only normal operating expenses incurred by a company for the purpose of raising revenues should be tax deductible.(14)

Because the tax advantages that flow from gifts made to Crown foundations are particularly generous, it might be in the interest of taxation authorities to review the role of this treatment, and the rationale for it. By giving to a Crown foundation rather than to another registered organization, individuals are able to exceed the 50% limit and substantially reduce their tax, which results in the loss of substantial amounts of public revenue.

Lastly, though increasing numbers of charities are asking Canadians for donations, there are limits to the amounts that taxpayers can give. In fact, the number of organizations is probably increasing at a faster rate than the total moneys given to charity in Canada. Each organization is thus receiving an ever smaller piece of the pie as the number of competing organizations grows. Revenue Canada could perhaps look at its criteria for assessing the legitimacy of the charitable activities of the organizations in question; for example, should Greenpeace and the Alliance Québec foundation be able to issue receipts for tax purposes when their activities are often political?

The only way to free up further financial resources at no cost to the federal government is to limit the number of charities by examining the legitimacy of their activities more closely and revoking their registration more quickly, where this is necessary.


Canadian Centre for Philanthropy. A Portrait of Canada's Charities. Toronto, 1994.

Revenue Canada. Information Circular, Registered Charities: Operating a Registered Charity. No. 80-10R. 17 December 1985.

Revenue Canada. Taxation Statistics, 1993. 1995 Edition, Table 2.

Statistics Canada. Canadian Social Trends. Ottawa, Summer 1992, p. 22-24


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Source:  Revenue Canada, Taxation Statistics, 1993.  Ottawa, 1995, Table 2.




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(1) The Financial Post, 9 December 1994, p. 18.

(2) Ibid.

(3) Canadian Centre for Philanthropy, A Portrait of Canada's Charities, Toronto, 1994, Figure 8.

(4) Ibid.

(5) Hospitals and post-secondary educational institutions have status as charities. There are more than 4,600 health care institutions with status as registered charities, and more than 9,300 registered educational institutions.

(6) Finance Committee, Minutes of Proceedings and Evidence, 24 November 1994, Issue 91, p. 59.

(7) Ibid.

(8) Finance Committee, Confronting Canada's Deficit Crisis, Ottawa, December 1994, p. 38.

(9) Department of Finance, Tax Measures: Supplementary Information, 1994-1995 Budget, 22 February 1994, p. 12.

(10) Department of Finance, Budget Plan, 1996-97 Budget, 6 March 1996, p. 70.

(11) The section entitled Tax Classification of Charities and Non-Profit Organizations discusses in detail what constitutes a registered organization and the benefits it enjoys. An organization may be registered if it carries on at least one of the following activities: relief of poverty, promotion of religion, promotion of education and other activities benefiting the community.

(12) TC = 0.5 Y + 0.5 (0.75 KG)

where TC = maximum annual charitable tax credit
          Y = Yi + 0.75 KG (net income as defined on line 236 of the income tax return)
          Yi = net income excluding taxable capital gains
          KG = capital gains

Thus TC = 0.5 Yi + 0.75 KG

(13) Taking as our basis the equation TC = 0.5 Yi + 0.75 KG, it follows that:
TC = 0.5 Yi + 0.75 (M - C)

where M= market value of donated property
          C= original cost of donated property

Thus TC < M where Yi < 0.5 M + 1.5 C

In other words, the tax credit will be less than the market value of the donation if net income is too low in relation to the difference between market value and originating value. For example, in the case of property that had not appreciated at all (i.e. (where M = C), the tax credit would be equal to the total value of the donation if net income (Yi) is twice the value of the property (M).

(14) Finance Committee, Minutes of Proceedings and Evidence, 23 November 1994, Issue 89.