Ottawa is cracking down on individuals and corporations that benefit from transferring or selling property with unused charitable donation credits.

Under the present tax regime, individuals and corporations making charitable donations, but lacking sufficient tax-payable to make use of resulting tax credits, can carry them forward for five years. But some taxpayers have been using schemes in which they transfer the property to a corporation. The property is then donated to a charity and the shares of the corporation are sold, garnering a capital gain for the otherwise potential donor.

Today’s budget proposes that the Income Tax Act be amended to provide that charitable donation deductions of corporations, which were unused when the corporation acquired control of the property, will be claimable only for tax years before the corporation got control.

The amendments will apply retroactively to gifts made after March 22, 2004.