The 2013 Federal Budget proposes to introduce a temporary supplement to the existing tax credit for charitable donations by individuals. Named the First-Time Donor’s Super Credit, the budget papers explain that the purpose of this new credit is to encourage those who have not made a charitable donation in the recent past to make a donation. The idea is to help kick-start a good habit.
The tax credit system for charitable donations is a method by which the government assists in the funding of charitable activities chosen by the public on a cost-sharing basis. If the activity is important enough for a taxpayer to support with a contribution, then the government shares in the donation by allowing that individual a tax credit.
Canadians made $10.6 billion in financial donations to charitable and non-profit organizations in 2010, but the average was only $446 per donor.
Under the new proposals, first-time donors will get an extra 25% federal tax credit for cash donations of up to a maximum of $1,000 of donations made on or after March 21, 2013, up to December 31, 2017. This limited timeframe reflects the temporary nature of the credit. The addition of this new credit is projected to cost the government an average of $25 million annually for each of the next five years.
The following chart shows how the 25% credit will be added to the charitable credit thresholds currently in place.
|Cash donation of $400||Cash donation of
|Cash donation of
|15% tax credit on first $200||$30||$30||$30|
|29% tax credit on amount above $200||$58||$232||$377|
|25% super credit on amounts up to $1,000||$100||$250||$250*|
|Total tax credits||$188||$512||$657|
|Note: *The donation eligible for the super credit is capped at a maximum of $1,000|
In essence, the total credit for a first-time donor will be 40% on the first $200, plus 54% for amounts between $200 and $1,000. It should be noted that the first-time donor will also be eligible for provincial tax credits in addition to the federal credits shown above.
For purposes of this new tax credit, an individual is considered a first-time donor if neither the individual nor the individual’s spouse or common-law partner have claimed any charitable donations in any taxation year after 2007. This means the super credit must be shared by couples, and if either spouse has claimed any charitable amount, even $20 or $50, subsequent to 2007, this will negate the couple’s access to the new super-credit.
The credit is only available for cash donations, which means that donations in kind such as shares are not eligible for the first-time donor super credit.
First-time donors who wish to make a donation should contribute what they can but be conscious of the timing of their donation, where possible, in order to maximize the value of the new super-credit.
E.O. & E.
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Contributors to this edition:
James W. Kraft, cpa, ca, mtax, tep, cfp, clu, ch.f.c.
Deborah Kraft, mtax, tep, cfp, clu, ch.f.c.