Charitable Donations Through Your Corporation
You may be aware of the generous tax incentives offered by the Canadian government for personal donations made to a registered charity. But did you know that the same holds true for donations made through your corporation?
While both individuals and corporations can claim donations up to 75 per cent of net income in the year, a personal donation provides for a non-refundable tax credit and corporations receive a deduction from income. Reducing taxable income reduces overall taxes.
Additionally, gifting securities “in kind” from an investment portfolio held within your corporation can achieve even more. Typically, when securities in your corporation are sold, the difference between the price you paid for the shares and the fair market value is considered a capital gain. Half of that amount is taxable, while the other 50 per cent is added to the capital dividend account or CDA. This is a notional account for tax purposes from which funds can be withdrawn as a tax-free dividend by shareholders.
By donating the securities in your corporation with the largest accrued capital gains, you reduce the taxable capital gain to zero, and instead, 100 per cent of the capital gain amount is added to the CDA. This is great news if you are charitably minded and looking to reduce corporate taxes and withdraw surplus assets in your corporation in a tax-efficient manner.
What if you want to use this strategy, but you are not sure if the charity you want to donate to can accept in-kind donations or you are not sure if you want to commit a large donation to one charity? Well, there are a few considerations and methods to ensure your donation is made effectively, including:
- Reaching out to your favourite charity to see if a gift of in-kind securities is on their list of accepted gifts.
- Setting up a charitable account like a donor advised fund with a charitable foundation, which can easily facilitate in-kind donations from your corporation. This allows you to separate the tax effects of the donation from deciding which charity or charities will benefit from your donation.
- Planning ahead. Donations made in a year can be claimed in future years (carried forward up to five years). This means you can pool up to six years of donations in one donation, in a single year, allowing you to strategically plan your corporate donations to maximize the tax benefits.
Can you benefit from donating securities held within your corporation?
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Information in this article is from sources believed to be reliable, however, we cannot represent that it is accurate or complete. It is provided as a general source of information and should not be considered personal investment advice or solicitation to buy or sell securities. Raymond James advisors are not tax advisors and we recommend that clients seek independent advice from a professional advisor on tax-related matters. The views are those of the author, Marnoa Private Wealth, and not necessarily those of Raymond James Ltd. Investors considering any investment should consult with their Investment Advisor to ensure that it is suitable for the investor’s circumstances and risk tolerance before making any investment decision. Raymond James Ltd. is a Member - Canadian Investor Protection Fund.
