The 2013 federal budget includes two provisions relevant to charitable giving.

Among many measures aimed at perceived tax “loopholes”, is a new provision that targets charitable donation tax shelters. The CRA is now no longer prohibited from collect taxes when a taxpayer objects to an assessment related to a charitable donation tax shelter.

The second provision is intended to reduce the cost of first-time charitable donations with an enhanced tax credit.

Charitable Donation Tax Shelters

The CRA can now collect 50% of the disputed tax, interest or penalties, when a taxpayer objects to an assessment that results from the disallowance of a deduction or tax credit claimed relating to a tax shelter that involves a charitable donation, Previously, the tax authorities could not take such action on disputed balances until 90 days after a final decision by CRA, or until after the Tax Court mailed a decision to the taxpayer. As well, taxpayers who paid disputed amounts could ask CRA to repay the amount or release security held in respect of the disputed amount.

The government has been fairly successful challenging charitable donation tax shelters yet abuses continue. Delays in litigation slow down tax collections and can limit the CRA’s ability to collect all amounts owing. This provision is intended to reduce these risks and will apply to amounts assessed for the 2013 and subsequent taxation years.

First Time Charitable Donor’s Super Credit

The 2013 budget also introduces a temporary first-time charitable donor’s super credit. This credit is in addition to the existing charitable donation tax credit, with an additional 25% tax credit on up to $1,000 in donations. Asa result, a first-time donor will be entitled to a 40% federal credit for donations of $200 or less, and a 54% federal credit for donations between $200 and $1,000. Only donations of money will qualify for this credit; gifts of property are ineligible. Further, the super credit applies to individuals, not corporations.

An individual will be considered a first-time donor if neither the individual nor the individual’s spouse or common-law partner has claimed the charitable donations tax credit or first-time donor’s super credit in any taxation year after 2007.

The first-time donor’s super credit will be available for donations made on or after March 21, 2013 and may be claimed only once in 2013 or subsequent taxation years up to and including the 2017 tax year.

A proposed “stretch credit” would encourage giving year after year once the super credit has been utilized by a taxpayer.

The super credit provides a unique incentive for new donors to establish relationships with charitable organizations and is ideally suited for young entrepreneurs and professionals entering the work force. Established donors can enhance their tax benefits by using the super credit with their children.

The Jewish Foundation would be pleased to discuss the myriad tax benefits of charitable giving with existing and potential donors, and their advisors.