If you haven’t claimed a donation tax credit since 2007 you may want to take full advantage of the First-time Donor’s Super Credit (FDSC).
Alternatives To Cash Gifts
Donations of Public Securities: If you have stocks or bonds, it is more efficient to donate the investment directly as this will eliminate the capital gain.
Flow-Through Tax Shelters: If you entered into any flow-through agreement after March 21, 2011, the tax benefit relating to the capital gain is eliminated or reduced. Consult with your accountant to help ensure you don’t create an unwanted capital gain.
Estate Plan Donations: If you worry that you may at some point have to deal with medical costs or simply cover daily living expenses, you can make a bequest in your will. Donation bequests are deductible on your final tax return. For deaths that occur after 2015, donations made by will and designation donations will no longer be deemed to be made by an individual immediately before the individual’s death. Instead, these donations will be deemed to be made by the individual’s estate and where certain conditions are met, these donations will be deemed to be made by the individual’s graduated rate estate.
The nonrefundable credit is a one-time deal and adds 25% to the normal Charitable Donation Tax Credit (CDTC). To maximize this tax break you may want to avoid claiming smaller donations in the years you make them and instead carry them forward over the five years the temporary credit is available until they add up to a $1,000 threshold.
The super credit is available to you if neither you nor your spouse of common-law partner has claimed a charitable credit since 2007. You may have made charitable donations since 2007, but as long as you didn’t claim a credit for them, you remain eligible for the super credit.
The $1,000 limit applies to individuals and couples; there is no doubling of the credit. If you share your super credit in a particular year, the total amount claimed can’t exceed the maximum allowable credit. There is no age limit on eligibility.
Gifts of property don’t qualify for the super credit. Donations of property, including investments, will normally qualify for the charitable donation credit, but for donations to earn the super credit they must be made in cash only.
Also, the credit’s restricted to individual taxpayers. Corporations making donations for the first time won’t be eligible. They will be limited to the tax deduction typically available for corporate donations.
For income tax purposes, the first $200 of charitable donations qualify for the 15% CDTC and gifts over that amount qualify for a 29% credit. The super credit boosts those federal tax breaks by an additional 25% on all donations up to the $1,000 limit.
The super credit effectively adds 25% to the rates used to calculate the normal refundable tax credit for as much as $1,000 of monetary donations. That means first-time individual donors are allowed a 40% federal credit for donations of $200 or less, and a 54% on amounts exceeding $200 but not exceeding $1,000.
Example 1 – All cash: A taxpayer eligible for the credit claims $500 of charitable donations. All of the gifts are donations of money. The taxpayer’s federal super and normal charitable credits would be calculated as follows:
|First $200 of donations claimed||$200 times 15%||= $30|
|Donations exceeding $200||$300 times 29%||= $87|
|First-Time Donor’s Super Credit||$500 times 25%||= $125|
|Total of both credits||$2421|
Example 2 – Mix of cash and investments: An eligible first-time donor claims $700 of charitable donations, but investments make up $400 of the total. Deducting that amount from the total leaves a cash donation of $300. The federal credits would be calculated as follows:
|First $200 of $300 donations claimed||$200 times 15%||= $30|
|Donations exceeding $200||$500 times 29%||= $145|
|First-Time Donor’s Super Credit||$300 times 25%||= $75|
|Total of both credits||$2501|
Consult with your advisor on how best to use this tax credit.
1. Provincial credits would increase these amounts.