Repeal of Additional Deduction for Gifts of Medicine

March 22, 2017

The Budget proposes to repeal a measure introduced in 2007 to encourage corporate donations of medicine out of inventory.

Prior to Budget Day, corporations that made “eligible medical gifts” to registered charities were entitled an additional special deduction over and above to the normal deduction available for gifts in kind.  The amount of the additional deduction is equal to the lesser of the following amounts: (i) the cost of the donated medicine; and (ii) 50% of the amount by which the fair market value of the donated medicine exceeds its cost.

An “eligible medical gift” is defined essentially as a gift of medicine (specifically medicine that qualifies as a “drug” within the meaning of the Food and Drug Regulations and that will not expire for at least 6 months), from the corporation’s inventory to registered charities for use in the charities’ activities carried on outside of Canada.

The Budget proposes that this special incentive will no longer be available for gifts made on or after Budget Day.

This proposed change does not affect the general ability of corporations to deduct the eligible amount of donations of property – including medicine – to registered charities.  The Budget only proposes to eliminate the ability of corporations to claim the special additional deduction.

Charities that operate medical clinics for people in need overseas, or that provide assistance to people in disaster and conflict zones, will be disappointed to hear that corporations may be less incentivized to donate medical inventory.  The Budget states that the measure is being repealed due primarily to low take-up.  As with the expiry of the first-time donor super credit, it is questionable whether low take-up alone justifies the repeal of a measure that incentivizes, even for a small group of donors, gifts that provide life-saving aid to the poor in the developing world.  However, we have seen little use of this provision in practice and its repeal is unlikely to hinder relief and development charities carrying on work overseas.


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