Charitable giving is an amazing opportunity for Canadian businesses to support causes that matter most to them.
Donating to charity is an excellent way for your business to connect with your community and improve team morale among your employees.
It can also have financial benefits as well when it comes to corporate tax planning.
Here is more information on charitable giving and how much your business should donate to charity this year:
How Does Charitable Giving Affect Corporate Taxes?
Tax Deductions
Unlike personal taxes, a donation made by a corporation can be used as a deduction against the business’s income and is treated like any other expense.
When a corporation makes a donation, it can reduce the amount of income that is subject to tax.
Therefore, by making donations that are eligible for tax deductions, you can reduce your business’s tax liability.
However, the value of the tax savings depends on whether the reduction of income is subject to the small business tax rate, general corporate tax rate, or corporate investment tax rate.
How to Calculate
Charitable donation tax credit rates vary from province to province and are based on the rates determined in 2017.
For example, if your business claims a taxable income of $250,000 and makes a donation of $20,000, this is how the tax will be calculated:
Federally:
- 15% on the first $200 – $30
- 33% of the lesser of the amount by which the donation exceeds $200 ($19,800) or the amount by which your taxable income exceeds $200,000 ($50,000) – $6,534
- 29% of the amount of total donations for the year over $200 that is not eligible for the above rate ($50,000-$19,800=$30,200) – $8758
- Total: $15,322
Provincially:
- 10% on the first $200 – $20
- 21% on the remaining $19,800 – $4,158
- Total: $4,178
Therefore, in this example, you can claim $19,500 of the $20,000 charitable donation.
Of course, this is a basic calculation and doesn’t take into account your entire tax situation.
To best calculate your taxable donations, it is recommended that you speak with an expert corporate tax accountant who can ensure all calculations are accurate.
Limits and Deadlines
Corporations can claim up to 75% of their net income in donations which must be claimed within the business’s fiscal year as an expense.
Sharing Claimable Donations Between Corporations
If you own more than one corporation, you cannot share donations between businesses when it comes to planning and filing your corporate taxes.
Only the corporation that made the donation can claim it.
Carryover
If a donation cannot be used during the tax year, it can be carried forward for up to five years.
What Donations Are Tax Deductible in Canada?
In order for your business to qualify for the donation tax dedication, you must donate to a qualified charity.
These are charities that are recognized by the CRA and can issue donation receipts for the money your business gives.
You can find a list of registered donees through the CRA.
Some eligible organizations include:
- Registered charities
- The United Nations
- National arts service organizations
- Registered Canadian amateur athletic associations (RCAAAs)
- Registered universities outside of Canada (that includes students from Canada)
Donations to US charities are allowed as long as your business has a US income source.
As far as what qualifies as an actual donation, the CRA recognizes donations as voluntary transfers of money or property in which you receive nothing in return.
If your business does receive something in return for your donation, the value of what you receive must be deducted from the amount of the donation.
For example, if your business purchases a $500 table at a charity dinner and the food costs $200, the eligible amount you can claim is $300.
How Much of a Charitable Donation Is Tax Deductible?
When it comes to claiming donations made through your business, how much of a charitable donation is tax deductible depends on the size of your company.
Small businesses, for instance, must list donations on Schedule 9 of a personal tax return, where they will receive the same tax credit treatment as a personal donation.
However, incorporated businesses have the choice to donate personally or through their corporation.
How Much Should I Donate Based on Revenue?
While there are no set rules as to how much you should donate based on your revenue, it’s important to remember that there are many ways to give charitably to organizations that align with your company’s values and mission.
The size of the donation should not be the only deciding factor – every dollar counts when it comes to supporting a worthy cause.
Overall, tax breaks shouldn’t determine how much your business gives to charity!
Take into consideration your company’s finances and choose an amount that suits your budget.
Should We Match Our Employees’ Individual Donations?
If you’re wondering if you should match your employee’s individual donations, the answer is yes!
Matched giving is an amazing way to involve your employees in your business’s charitable giving by matching the money they raise.
It encourages your employees to engage in supporting a worthy cause, and matching their donations will help them reach their goals and show your support.
Plus, matching your employees’ individual donations will help your company make a large social impact!
Encouraging your employees to donate to a cause doesn’t have to involve fundraising events. You can set up payroll donations or accept personal donations from your team.
And, yes, matched giving counts as a tax-deductible charitable donation – but you can only claim the amount you contribute, not the amount raised by your employees.
How Do We Choose a Cause?
Before you make any charitable donations through your business, it’s important that you choose the right cause to support.
That’s not to say that some causes are better than others, but you want to choose a cause that best aligns with your company, its values, and its employees.
Here are some tips for choosing a cause to support:
Choose a Cause That Supports Your Company’s Values
Think about your company’s core values and whether or not you want to donate to charities related to your business or support the needs of your community.
Just keep in mind that you can do both!
For instance, if you own a restaurant, you could donate to charities that address hunger and nutrition, local food banks, soup kitchens, and school breakfast programs.
It’s also important that you consider the charity’s values as well – do they align with yours?
Take a look at their core mission and see if they share your views and values.
Research the Charity Before Donating
Once you decide which charity you want your business to support, don’t be afraid to ask questions.
Talk to others in your industry and your community for feedback on the charity – have they made a significant impact with their donations?
You can also speak with the executive director of the charity you wish to support.
Consider their strategy and their long-term plan.
Ready to Get Started?
At Liu & Associates, we are dedicated to helping your company’s growth by offering exceptional corporate accounting services.
We can help you plan your charitable donations to optimize your support and tax deductions.
Get in touch with us today to get started!