Budget boosts charitable tax credits, LSVCCs phase out

The industry has had almost a week to digest Budget 2013, which tightened various tax credits.

And when it comes to charitable contributions, the Budget proposed some positive changes.

Industry experts are applauding the new temporary First-Time Donor’s Super Credit (FDSC). If clients haven’t donated since 2007, the FDSC offers an additional 25% tax credit on top of the federal and provincial rates. It applies to any amount up to $1,000. This will last until 2017.

Read: Don’t waste charity tax credits

This is a welcome credit, especially since fewer Canadians are donating, says Jo-Ann Ryan, vice president, Philanthropic Advisory Services at TD Waterhouse and executive director of the Private Giving Foundation.

She notes in 2007, Statistics Canada reported only 23% of all tax filers made charitable contributions, down from 29.5% in 1990. “That’s a disturbing trend,” says Ryan.

Read: When to talk philanthropy

In Ontario, the federal and provincial combined tax credit on a donation up to $200 is 20.05%, and 46.41% if it’s above $200. But now with the FDSC, she says, new donors who give over $200 receive a credit of 71.41%.

“It’s really costing very little to make a donation,” she says. “Charities will have to do still do a good job of communicating this message because it’s buried in the details.”

Read: 15 tax credits to help clients save

Brad Offman, vice president, strategic philanthropy at Mackenzie Financial adds advisors should also talk to clients about charitable giving.

“It’s a great way to get to know your clients on a deeper level,” he says. “And it’s the easiest and most effective way for Canadians to save money on their taxes.”

Charitable tax schemes

Budget 2013 will also give CRA more authority to strike back at taxpayers who participate in fraudulent gifting shelters. If a donor is assessed for a contribution, CRA will now be allowed to collect 50% of the disputed tax, interest or penalties, notes the Budget.

Read: 9 tax tips from the CRA

Previously, CRA couldn’t do this while the amount was being disputed even though interest would still accrue on the amount owed.

“These tax shelters have been a tremendous thorn in the side of the Canadian charitable sector,” says Offman. “Hopefully, by raising awareness of the negative consequences of participating in these schemes, they will finally be shut down for good.”

Read: Protect clients from gifting tax shelter schemes

LSVCCs

The Budget also proposes to phase out the 15% federal tax credit for Labour-Sponsored Venture Capital Corporations (LSVCCs). It’s offered to investors who acquire up to $5,000 in shares of LSVCCs annually.

But in 2015, the credit will be reduced to 10%; to 5% in 2016; and in 2017 it will be eliminated.

Read: Budget 2013 focuses on deficit taming

John Campbell, tax partner at Hilborn LLP notes the credit hasn’t been very successful and the change won’t impact many clients. Very few are investing in LSVCCs due to high fees and poor returns.

“[The] risk profile is high [and] a lot of people are finding they’re lucky to get their money back,” he says.

An example of an LSVCC is the troubled GrowthWorks Canadian Fund, which is no longer available. Shareholders have been waiting to get their money back after the fund was frozen in 2011.

Read: GrowthWorks defends management fees on flailing fund