Since 2007 Albertans have enjoyed what has been dubbed by some a “Super Credit” for donations to their favourite charities. In the spirit of generosity in 2007, the Alberta Government enhanced the tax credit to 21% from 12.75% on total annual donations over $200. Combining this with the Federal Tax Credit, generous Albertans have enjoyed giving to their favourite charity at a rate of 50 cents on the dollar. All of this is going to come to an end in the 2016 taxation year.
This is what the Alberta Government says in their Budget 2015 documents about the Charitable Donations Tax Credit (CDTC):
In 2007, the CDTC was enhanced from 12.75% to 21% on total donations over $200. Given the ineffectiveness of the credit enhancements and the current fiscal environment, the CDTC rate applied to total donations over $200 will be returned to 12.75% for 2016 – the rate in effect prior to 2007. Returning the charitable credit to 12.75% for the 2016 tax year is estimated to save the government $90 million annually.
Do the math and try to figure the out the amount of donations that would be affected for the government to save $90 million per year and it boggles the mind. By my calculations (which I have checked with others) to save $90 million with an 8.25% reduction in the credit, would have to effect over $1 billion dollars in donations to the charitable sector in one year. The real money effect on the pocket book of generous Albertans is easy to calculate. The 8.25% reduction in the credit means that for every $100,000 donated after the initial $200, it takes $8,250 out of the donors pocket and gives to the Alberta Government. This is a real sleight of hand transfer of wealth. Some might see this reduction in a tax credit as the same as a new tax in 2016 if it achieves the same result of putting cash into the general revenue for the government to distribute as it pleases.
Prudent charities have already begun budgeting for 2016 and beyond. Not only did they have to provide for a decrease in projections because of the lower cost of the price of oil but now they have to somehow factor in a potential decrease in donations (projected or pledged) because of the lower tax rate that will be enjoyed by their generous donors. They will have to second guess the effect on their donations because of the lower tax credit rate. Unlike the government of Alberta, who has offloaded many services to the charitable sector, charities cannot raise taxes. The government says that 39% of their budget is health services. Well, some of the charities that receive donations are in the health care services area with a budget of 100% for health services. In many cases this is circular because some these charities depend on government grants for their survival. Maybe they will get some of the extra money that the new Health Care Contribution Levy (also created in the 2015 budget) will bring in. As the Alberta Government has said, the HCCL is expected to raise $396 Million in 2015-16.
To summarize: Potentially effect $1 billion in funds to the charitable sector, take $8250 away out of every $100,000 donated by a taxpayer and give it to the government that has levied a health care tax against those who can afford it ( i.e. the same who can afford to donate higher amounts to charity). This is how you erode the Alberta Advantage.