Imagine making a $1,000 donation to charity with an after-tax cost of only $256. It turns out you might not have to imagine it; it's a reality for some Canadians, thanks to the new First-Time Donor's Super Credit (FDSC) that was announced in the 2013 federal budget.
The FDSC seems to be a well-kept secret. This specific measure in the budget received royal assent in late June, and is retroactive to donations made on or after March 21, 2013. It's only a temporary program, for now, and is set to expire at the end of 2017. It may be repeatedly extended, especially if few people take advantage of it. It would be an easy way to score popularity points for a Minister of Finance to make such an announcement, especially if it has minimal impact on revenues. That may be the case, considering the poor fanfare it's received to date.
Let's try to increase that impact, shall we?
The FDSC is an enhancement to the standard charitable donations tax credit and as the name would imply, is available to first-time charitable donors. What isn't so clear, is that you can qualify as a first-time charitable donor more than once in your lifetime. As long as neither you nor your spouse or common-law partner have claimed the credit since 2007, you are eligible. Also note that you can have made a donation and elected not to claim it. These rules are anything but simple. A lot more Canadians will probably qualify for the FDSC than they might imagine.
Federally, the first $200 in donations normally qualifies for a 15 per cent credit. Any donation claimed beyond that amount qualifies for a 29 per cent federal credit. The FDSC increases those federal credits by an additional 25 per cent on all donations claimed up to $1,000. When you then add on the provincial tax credits, in Quebec your total credits earned on a $1,000 donation would be $744. In Ontario, it would be $611. For every other province or territory, it's somewhere in between. In other words, the potential tax savings for donating to charity increases to between 61.1 per cent and 74.4 per cent for those who maximize the FDSC.
There are a few catches. The credit can be shared between spouses and common-law partners, but the total claimed donations by both individuals for the FDSC cannot exceed $1,000. Single Canadians, however, can each claim donations for the FDSC up to $1,000. Donations of property, including investments, will normally qualify for the charitable donation credit, but for donations to earn the FDSC they must be made in cash only.
Finally, while normal donations are allowed to be made and then claimed in future years for the standard credit, only donations made in the same year of claim will qualify for the FDSC. Is your head spinning yet?
The First-Time Donor's Super Credit is a great incentive to encourage donations to charity. Too bad the rules for eligibility are so byzantine. It might be here to stay, but perhaps only because many people won't know how to take advantage of it, resulting in minimal impact to tax revenues for the government.
Preet Banerjee, a personal finance expert, is the host of Million Dollar Neighbourhood on The Oprah Winfrey Network. You can read his blog at WhereDoesAllMyMoneyGo.com and follow him on Twitter at @preetbanerjee.
Preet Banerjee