Written on April 10, 2013 – 6:50 am | by Malcolm Burrows
Charities have been puzzling over what to do with the new First-Time Donor’s Super Credit (FDSC) since it was announced in the March 22, 2013 Federal Budget. The FDSC is a stimulus-style incentive for charitable giving for gifts claimed between 2013 and 2017. Its goal is to inspire non-donors to give up to $1,000 in a single year by providing an extra tax federal credit of 25%.
The FDSC has curious underlying logic. First, in tax policy terms, it throws aside the long-standing principle of Canada’s offset donation tax credit system. When you make a donation you don’t make money, but you do get back the tax you would otherwise owe. This incentive adds a serious sweetener. On the first $200 donated, according to the Budget document, the credit increases the combined federal provincial tax credit from $40 to $90, a 125% increase. A $1,000 donation by an Ontario taxpayer of middle income would produce a credit of $611. Not bad if your average tax rate is 30%.
Second, this juiced incentive has limited utility. It can be claimed once, but only by taxpayers (spouses are counted together) who have not claimed donations since 2007. For example, a $20 donation claim in 2008 will disallow a FDSC claim in 2015. The Budget claims the “new credit will significantly enhance the attractiveness of donating to a charity for young Canadians… helping to rejuvenate and expand the charitable sector’s donor base,” despite the fact the FDSC is available to any non-donor taxpayer.
Here logic breaks down. Handing out candy once may persuade a first-time donor (or long-time non-donor) to give, but it won’t lead to long-term behavioural change to expand the shrinking Canadian donor base. Habit is formed by repetition, not one offs. Inflating the credit sends the wrong message to first-time donors: giving is about tax, not altruism, cause or connection. Remove the candy will there be future gifts?
Finding prospective donors will be difficult for charities. Pitching a cause on the basis of tax savings is leading with the wrong foot. Many taxpayers won’t know if they qualify. Fundraising colleagues have told me these donors will drive up fundraising costs. They are unlikely to respond to follow-up solicitations. Loyal donors lower fundraising costs; one-time donors increase them.
The FDSC will undoubtedly encourage many Canadians to give, at least once. Advisors will be remiss in not promoting the FDSC – it’s too good to ignore. Let’s hope future donation tax incentives will be more rooted in long-term donor behaviour, the needs of charities, and the underlying values of philanthropy.