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Saturday, November 6, 2010

Canadian Couple Who Gave $11.2m Lottery Winnings to Charity Would Have U.S. Tax Problem

An elderly couple in Nova Scotia has given to charity 98% of the $11.2 million they won in the July 14 Canadian lottery. (They kept 2% "for emergencies and to buy lottery tickets.") If the couple lived in the United States they would have a tax problem because the $11.2 million would be included in their income, but ยง 170(b)(1) would cap their charitable deduction at 50% of their AGI.

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(Hat Tip: Ann Murphy.)

Update:  From Mary O'Keeffe (Union College):

Fortunately for this commendably generous Canadian couple, they do not live in the United States, which would apply a "No good deed goes unpunished" tax policy to a case like this one.

Canada does not include lottery winnings in taxable income. Canada also has a very different sort of tax preference for charitable donations. Donors apparently do not get to deduct the amounts donated, but they do get (nonrefundable) tax credits for the amounts they donate--and they can get credits for donating up to 75% of their income. The credit is computed at 15% for the first $200 of giving and 29% for subsequent amounts.

Since the top marginal rate is 29%, this means that taxpayers in the top tax bracket (over $127k in taxable income) get a benefit approximately equivalent to deducting it, but taxpayers in lower brackets get a tax benefit that is better than deducting it would have yielded. The bottom line--in general, Canada's policy towards generous donors with modest incomes is far more progressive than the United States tax policy.

http://taxprof.typepad.com/taxprof_blog/2010/11/good-thing.html

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» Lottery winnings, charitable donations and the tax collector from Don't Mess With Taxes
By now I'm sure you've heard about the Nova Scotia couple who hit the lottery and then gave away most of their $10.9 million (Canadian) winnings to charities. Allen and Violet Large are generous, but they're no fools. They kept nearly a million for the... [Read More]

Tracked on Nov 12, 2010 1:34:14 PM

Comments

the AGI limitation would be a problem unless they gave the uncashed ticket to charity. In order to get the 2% back - maybe a bargain/sale of the ticket - or a NIMCRUT.

Posted by: Prof K | Nov 7, 2010 8:26:48 AM

Does Canada have any problem with people giving 100% of their incomes to dubious charities for personal gain? Is that possibility the reason for the American rule?

Posted by: Eric Rasmusen | Nov 9, 2010 11:15:22 AM