What’s at the heart of your business?
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You’ve worked hard to grow your business over the years and now it’s time to share the wealth with your favourite charity. Giving back through a personalized charitable giving strategy speaks volumes about who you are and the values you hold dear.
Careful planning today, utilizing the Canadian income tax incentives available can ensure that you maximize your philanthropic goals . And, your Canadian business can also be a valuable tool in the strategy.
As an individual your lasting legacy can be achieved, not only with gifts of cash, but also through gifts of certain capital property, registered plans such as RRSPs, RRIFs, and life insurance, either during your lifetime or through a bequest at death. If you are a business owner, funds and investments within the corporation can be used to augment your personal charitable giving goals, while achieving tax efficiencies within the corporation at the same time.
How do corporate donations work?
Generally, the rules for charitable donations are the same for individuals and corporations in Canada. Up to 75% of net income can be donated within the tax year. Excess donations can be carried forward for up to 5 years.
The main difference between individual and corporate donations is the tax treatment in the year of donation. An individual donor will receive a non-refundable tax credit on their tax return which will reduce their tax payable. A Canadian corporation will claim the donation as tax deduction that will reduce taxable income in the year.
Gifts of certain capital property, such as publicly traded securities can be donated with additional tax savings: If you sell investments that have appreciated in value, you will normally realize a capital gain and 50% of the gain would be subject to tax. However, Canadians who donate certain capital property to their favourite charity pay no capital gains tax and receive a tax credit for the fair market value of the donated property. This rule applies to both individual and corporate donations.
But the corporation has an added benefit when gifting appreciated securities through the Capital Dividend Account (CDA). The CDA is a notional account that is used to keep track of the non-taxable portion (50%) of the capital gains earned by the corporation. Shareholders can withdraw amounts in the CDA on a tax free basis.
| || ||Donating shares through a business = tax savings for BOTH you and the corporation |
George is the sole shareholder of ABC Holdco Ltd., a Canadian Controlled Private Corporation. Let’s assume that both George and the corporation hold similar portfolios of publicly traded securities with a fair market value of $250,000 and an adjusted cost base of $110,000.
If George held these shares personally, he could donate the shares and receive a donation receipt for $250,000 to claim as a tax credit on his annual tax return. The taxable capital gain of $70,000 is reduced to $0 as a result of the donation.
If, however, George’s corporation donates a similarly valued security, ABC Holdco Ltd. will benefit in 3 ways:
- The corporation will have a tax deduction of $250,000 which will reduce taxable income in the year.
- No tax is payable by the corporation on the capital gain realized on the donation of the securities.
- The corporation’s CDA will be increased by 50% of the capital gain. George can withdraw the balance of the CDA on a tax free basis.
As illustrated in the above example, the corporation will benefit from tax savings and George will be able to withdraw cash from his corporation on a tax free basis.
You’ve worked closely with your Richardson GMP Investment Advisor to reach your personal and business investment goals. Now, we can help you achieve your dream of making a difference.
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If you would like more information on charitable giving strategies, or would like a complimentary copy of our publications Richardson GMP Charitable Giving Program and Guide to Charitable Giving, contact your Investment Advisor.