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
- 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
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 report
released 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.