Those in the sector will know that Imagine Canada has been pushing for the Stretch Tax Credit as a way to increase the overall donor base and encourage those who have never before made a donation. In fact, the Finance Committee in its hearings on charitable donation tax incentives was overwhelmed by the number of proponents of the idea. (This was not necessarily a positive as many in the Committee wondered why they did not hear a broader assortment of ideas). And, in the final result, the Finance Committee recommended the stretch tax credit to the Minister of Finance for consideration.
Budget 2013 serves as the official answer of the Government to the Finance Committee and it would appear that the First Time Donor's Credit (the “FTDC”) is its specific response to the Stretch Tax Credit (although those that follow such things will recognize that the FTDC is more similar to the Cardus plan than the Imagine Canada plan).
What it means
The FTDC will increase the value of the federal Charitable Donations Tax Credit by 25 percentage points if neither the taxpayer nor their spouse has claimed the credit since 2007. The FTDC will apply on up to $1,000 in cash donations claimed in respect of any one taxation year from 2013 to 2017.
So whereas the federal credit on the first $200 of donations used to be $30 (15%), now it will be $80 (40%). For the amount between $200 and $1000 the amount used to be $282 (29%) and now will be $432 (54%).
The enhanced credit will only be available in the first year a donor or spouse (including common law) claim it. And if claimed for, say $20, the credit will presumably no longer be available for the remaining $980.
Why not a Stretch Tax Credit?
Apparently, the Stretch Tax Credit was unacceptable to the government and so it put in place its own plan to accomplish the same goals. While we do not know why the Stretch Tax Credit was rejected, it was critiqued as having some difficulties in its administration and even in achieving its own stated goals.
Nevertheless, the FTDC will have its own administrative difficulties. For example, to maintain the integrity of the income tax collection system, the Canada Revenue Agency will have to track the donations made by each Canadian, their spouses - and their common law spouses - along with divorces to ensure that neither the particular taxpayer nor their spouse has claimed a tax credit since 2007. (We are unsure why 2007 was chosen but one would imagine the CRA already started keeping such records in 2007, so that was as far back they could reasonably go).
And all this tracking for rather paltry amounts.
Will it last?
The fact that the FTDC is temporary is interesting from two perspectives. On the one hand, the tax exemption on the donation of publicly traded securities was also intended to be temporary as a way to judge the impact of the move on the treasury. Now, of course, the provision is here to stay.
On the other hand, a cynic might say that the sector has become so loud in its advocating for the Stretch Tax Credit that a temporary measure to quiet the noise may be a deft political maneuver.
Adam Aptowitzer of Drache Aptowitzer LLP is a charity law lawyer with a national practice based in Ottawa. He has been published in Canadian Taxpayer, Canadian Fundraising & Philanthropy and the Not-for-Profit News. He has also published a widely distributed study on the regulation of Canadian charities with the C.D. Howe Institute.
As a speaker, he has addressed many professional associations and Canadian charities. He has also given expert advice on Parliament Hill. Adam is an executive member of the Canadian Bar Association’s Charity and Not-for-Profit Law section.
For speaking engagements and consultations, contact him at 613-237-3300 or visit http://www.drache.ca.