The Federal Government has introduced a new temporary tax incentive to encourage young Canadians to make charitable donations. First-time donors who make charitable gifts prior to 2018 will receive an additional 25% tax credit, over and above the tax credit that is normally available for charitable gifts.
The Tax Act provides that an individual who makes a gift to a qualified donee can claim a non-refundable tax credit calculated as follows:
- 15% for the first $200 of total charitable donations made in the year; and
- 29% for all donations in the year in excess of $200.
As an administrative practice, CRA permits an individual to claim donations made by either the individual or the individual’s spouse or common-law partner.
The Budget proposes to introduce a temporary “First-time Donor’s Super Credit” (“FDSC”). As noted, the FDSC will supplement the standard tax credit with an additional 25% tax credit for a first-time donor on up to $1,000 of donations. Under the new rules, the combined federal tax credits available in respect of the first $1,000 given by a first-time donor will be as follows:
- 40% for donations of $200 or less; and
- 54% for all donations over $200 but not exceeding $1,000.
Only donations of money will qualify for the FDSC. Gifts of property will not qualify. The FDSC is also available only to individuals. Corporations making charitable donations for the first time will not be eligible for the FDSC, and will be limited to the tax deduction normally available for charitable donations by corporations.
In order to qualify as a “first-time donor”, neither the donor nor the donor’s spouse or common law partner (as of December 31 of the year of the gift) can have claimed a donation tax credit or FDSC in any taxation year after 2007. First-time donor couples may share the FDSC in a taxation year. However, the rules provide that the total tax credit that can be claimed by both spouses or common law partners cannot exceed the amount that would be permitted if only one spouse/common law partner were permitted to claim the FDSC.
The FDSC is a time-limited measure. It will only be available for donations made on or after March 21, 2013, and may be claimed only once in the 2013 year or in subsequent years ending prior to 2018. Donations made after December 31, 2017 will not be eligible for the FDSC.
It should be noted that while the FDSC has been introduced with the primary goal of motivating young Canadians to give, there is no age limit on eligibility for the FDSC. The FDSC is available to anyone who has not claimed a charitable donation tax credit since 2007.
The Federal Government notes that the FDSC is being proposed in response to the recent recommendations of the House of Commons Standing Committee on Finance that were set out in a reportreleased February 11, 2013. It is hoped that the new FDSC will encourage young Canadians (and Canadians who have not previously made charitable gifts) to begin making charitable donations, which would provide both an immediate boost to the charitable sector as well as potential long term support by expanding the current donor base. We do note that case law permits parents to make gifts to children with the understanding that the children are likely to use the gift to make charitable donations.