My name is Mark Goodfield. Welcome to The Blunt Bean Counter ™, a blog that shares my thoughts on income taxes, finance and the psychology of money. I am a Chartered Professional Accountant and a partner with a National Accounting Firm in Toronto. This blog is meant for everyone, but in particular for high net worth individuals and owners of private corporations. The views and opinions expressed in this blog are written solely in my personal capacity and cannot be attributed to the accounting firm with which I am affiliated. My posts are blunt, opinionated and even have a twist of humor/sarcasm. You've been warned.

Monday, September 30, 2013

Charitable Giving - The First-Time Donor’s Super Credit - Why is it Necessary?

In August, Preet Banerjee of the Globe and Mail wrote an article titled “A super (secret) way to quadruple your charitable giving”. The article discussed the income tax benefits of the new First-Time Donor’s Super Credit (“FDSC”). While I applaud any charitable giving, I find it very sad that because of a shrinking donor pool; the government had to create such a program to entice Canadians to make their first charitable donation since 2007, or in some cases their first donation ever!

According to this CBC article, Canadians are one of the most generous nations in the world, yet “from a high of almost 30 per cent in the early 1990s, the proportion of taxpayers claiming charitable
donations on their tax returns had fallen to 23 per cent by the 2011 tax year.”

As Preet describes in his article, the FDSC was announced in the 2013 Federal Budget and is effective from March 21, 2013 to December 31, 2017. Essentially, this new credit is available as long as neither you nor your spouse or common-law partner has claimed a charitable credit since 2007 (Note: if you made a donation but did not claim it, you are still eligible).

For income tax purposes, the first $200 of charitable donations qualify for a 15% credit and any donations in excess of $200 qualify for a 29% federal credit. The FDSC increases those federal credits by an additional 25% on all donations claimed to a maximum of $1,000.The provinces also provide charitable tax credits, however, they vary by province.

The CRA provides the following example of the FDSC from a federal perspective where you make a $500 donation:

First $200 of charitable donations claimed:$200 x 15% =$30
Charitable donations claimed in excess of $200:$300 x 29% =$87
First-Time Donor’s Super Credit:$500 x 25% =$125
Total FDSC and CDTC: $242


This program would appear to make some sense in the context of students entering the workforce or those who have endured hard economic times and have not had much if any discretionary income to make charitable donations. However, a lower income is not necessarily a deterrent to making charitable donations. Over the years I have often been asked to prepare a caregivers tax return by their employer; often the caregiver has made substantial donations and sometimes donated a significantly greater proportion of their income than their employer. 

Based on the number of charitable requests I receive from friends, family and associates for every biking and running charity event, I find it almost inconceivable that most people have not been "guilted" into at least one donation since 2007. You would think most Canadians would almost have no choice but to make a donation or two a year just from family and religious expectations.

Over my 25 years as an accountant, spanning various firms, I have worked with clients making hundreds of thousands of dollars if not millions of dollars. These clients often make so many donations and have so many donation receipts, that we cannot staple their tax returns. Yet, one particular firm I used to work for, for some reason had several clients whose charitable donations consisted solely of a single donation of say $100 or a few small donations which I found shocking given their financial resources. I have a hard time accepting there could be people in the top 1% of earners in Canada potentially claiming the FDTC.

Believe it or not, I have had the occasional client complain to me about how much tax they have to pay. Where they make minimal charitable contributions, I may inform them in as nice a way as a Blunt Bean Counter can, that they are missing the best tax planning vehicle around, the donation tax credit you receive when making a charitable donation. Sometimes this awakens their charitable giving and sometimes not.

I had not given much thought to the FDSC until Preet’s article. But when I read the article, I couldn’t help thinking that it is absurd for a country as prosperous as Canada to require such a program, when we already have such a generous donation tax credit scheme. However, if the program changes even a few people’s charitable behaviour, than I guess it has to be considered a success. Wednesday I will discuss some alternative ways to make charitable donations and the associated tax advantages.

The blogs posted on The Blunt Bean Counter provide information of a general nature. These posts should not be considered specific advice; as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained in one of the blogs.

7 comments:

  1. Hello Mr. Goodfield, I'd like to ask a quick question to you.

    I made my first donation ever last year (2012) for an amount of $150. I did not claim it in my 2012 tax return, because I didn't want to void my rights to claim the 2013 Fist-Time Donor's Super Credit.

    I plan to make another charitable donation of $150 before the end of 2013.

    Here's my question: Will I be able to claim the 2013 FDSC using the receipt for my forthcoming 2013 charitable donation, and STILL be able to claim a regular charitable credit in my 2014 tax return for my 2012 donation which I still haven't claimed?

    (In other words, will the Canada Revenue Agency retroactively reject my 2013 FDSC claim in 2014 when they will find out that I had already made a donation in 2012?)

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    1. Martin

      There is very little known about this credit as of now. However, if you have not claimed a donation credit before this year you the CRA says you are eligible to claim the FDSC. So based on what I have read (I would double check before you file), you should be able to claim the FDSC on your 2013 donation and claim the 2012 donation as a regular donation on either your 2013 return or 2014 without any fear of having your 2013 claim rejected.

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  2. I, as the higher earning spouse have claimed all donations, even those made by my husband. If he made our family's donations this year would he be able to claim this credit?

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    Replies
    1. Unfortunately not. See Q4. here: http://www.cra-arc.gc.ca/gncy/bdgt/2013/qa01-eng.html#q4

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    2. Although as an aside, this comment makes me think. Although the percentage of people claiming charitable donations may only be 23%, the percentage actually making donations must be higher, perhaps significantly so, due to one spouse claiming all donations. Also for many business owners it may make more sense to donate via the business instead of personally. (Although presumably the first one would have a much greater impact since I assume there are more married couples than small businesses out there.)

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    3. Hi Anon

      No. The new credit is available as long as neither you nor your spouse or common-law partner has claimed a charitable credit since 2007 and you have claimed the credit, thug your husband would not qualify

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    4. Hi Nathan

      Opps, I did not notice you already answered the first question. Can I hire you to take care of my future responses :)

      Actually you raise an interesting point. Does the CRA count only one spouse as a contributor when they both may have contributed and only one spouse claimed the donations. Also, many spouses look at their contributions as joint even if they put in one name. Also, you are correct, many people donate through their businesses.

      However, take it from me as someone who has done tax returns for over 25 years; many people do not contribute anywhere near what you would consider the minimum given their income, whether a very high income or even a moderate income that you would think would allow them to make even a few smaller donations each year.

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