T2 Schedule 2: donations deducted on line 311, up to 75% of income

How does Schedule 2 turn a donation into a line 311 deduction?

The gift leaves net income first and comes back as a deduction below it. The current year's donations go on Schedule 2 line 210 and are added back on Schedule 1 line 112, then the amount you claim on Schedule 2 line 260 goes to T2 line 311, where it reduces taxable income canada.ca. The rule behind it is paragraph 110.1(1)(a), which allows gifts to qualified donees made in the year or the 5 preceding tax years laws-lois.justice.gc.ca.

The current form is labelled for 2023 and later tax years, so it's the one you use for 2026 canada.ca. Cultural gifts (Part 3) go to T2 line 313 and ecological gifts (Part 4) go to line 314 canada.ca. The full book to tax reconciliation is on the Schedule 1 adjustments page.

What does the 75% limit do to a large cash gift?

The CRA's guide puts the ceiling at 75% of net income on line 300, raised by 25% of taxable capital gains and recapture from gifted property, and claimed oldest donations first canada.ca. Here is a corporation with $150,000 of income before donations that gives $130,000 in cash in its 2026 tax year and expenses it in the books.

The $17,500 can be claimed in any of the next 5 tax years canada.ca. The count is tax years, not calendar years, so a short tax year, such as the one an amalgamation creates, uses up a full year of the window. Part 6 of Schedule 2 tracks each year of origin, which tells you what expires next canada.ca.

The 25% top up only follows gains on property the corporation gave away. Sell an asset and donate the cash, and the gain is just income: it raises the 75% base but not the top up laws-lois.justice.gc.ca.

Why give listed shares instead of selling them first?

Two reasons: no tax on the gain, and a bigger capital dividend account. Paragraph 38(a.1) sets the taxable capital gain at zero when a taxpayer gives a qualified donee a share listed on a designated stock exchange, a mutual fund share or unit, or a prescribed debt obligation laws-lois.justice.gc.ca. The CDA adds the capital gain minus the taxable capital gain, and gifts described in 110.1(1) are not carved out, so the whole gain goes in laws-lois.justice.gc.ca.

Take a private corporation holding listed shares worth $100,000 with an adjusted cost base of $20,000:

The in kind gift keeps $40,000 out of income and lets the corporation pay $80,000 of tax free capital dividends instead of $40,000, after a T2054 election (see capital dividend account). Because the taxable gain is zero, the top up is zero too, so a big share gift is still bound by 75% of the corporation's other income. The individual side of the same planning is on donating securities.

Which gifts get a reduced value or no deduction at all?

Unlisted shares of the donor corporation, or of a corporation it doesn't deal with at arm's length, are nonqualifying securities, because 110.1(6) applies the individual rules in 118.1(13) to corporations and excludes only shares listed on a designated stock exchange laws-lois.justice.gc.ca. The gift is ignored unless the donee disposes of the security within 60 months, or it stops being a nonqualifying security in that time; then it counts as made at that later point canada.ca.

Property held less than 3 years is receipted at the lesser of its value and its cost or adjusted cost base, under 248(35) laws-lois.justice.gc.ca. Subsection 248(37) lifts that cap for, among others, inventory, real property in Canada, listed securities under 38(a.1), and property the corporation got from a controlling shareholder on a section 85 rollover that the shareholder could have given without the cap.

For gifted capital property with a gain, 110.1(3) lets the corporation designate the proceeds, and so the gift, at any amount up to fair market value but no lower than the greater of the advantage and the property's adjusted cost base (a cost based floor applies to depreciable property) laws-lois.justice.gc.ca. A lower designation shrinks both the gain and the deduction, which helps when the corporation couldn't use the full gift within the 5 years anyway.

Certified cultural property and ecological gifts sit outside the 75% limit, though the claim still can't exceed net income less the other donations claimed. The deduction is the eligible amount plus undeducted gifts from earlier years, and ecological gifts made on or after February 11, 2014 carry forward 10 years instead of 5 canada.ca.

What happens to unused donations on a loss, a merger or a change of control?

A loss year gives no deduction. The CRA says donations can't be used to create or increase a loss, so they wait on line 280 canada.ca. Unlike a noncapital loss, which carries forward 20 years, a donation dies after 5.

On an amalgamation under 87(1) or the winding up of a subsidiary under 88(1), the unused balance moves to the new or parent corporation through Schedule 2 line 250 canada.ca. See amalgamation and winding up a subsidiary.

An acquisition of control wipes the carryforward. For tax years ending on or after it, no corporation can deduct a gift made before it, and a gift made under an arrangement that expected the change of control is lost too unless the person taking control is the donee laws-lois.justice.gc.ca. Report the loss on line 255, and claim what you can in the short year before the change (see acquisition of control).