As a business owner in Canada, you may be wondering the best way to make charitable donations. Should you make charitable donations through your corporation or personally? There are specific guidelines when it comes to both options. Tax credits and deductions can only be claimed if you adhere to those guidelines.
In this blog post, we’ll explore the ins and outs of making charitable donations, through your corporation or personally, and help you decide which option is best for you.
What is the charitable donation tax credit?
The charitable donation tax credit is a non-refundable tax credit you can claim on donations of money or eligible property made to a qualified donee. A qualified donee is a registered charity or other qualified donee. Examples include Canadian Amateur Athletic Association, a Canadian municipality, or the United Nations and its agencies.
Charities in the US and crowdfunding platforms such as Go Fund Me, do not qualify for the donation tax credit. Depending on the circumstances surrounding payment to these types of organizations, these amounts may qualify as eligible business expenses. We recommend discussing this with your accountant before making any payments.
How does the credit impact your personal and corporate tax return?
The donation tax credit is only available on your personal tax return. Because this is a credit and not a deduction, the amount is used to reduce the amount of tax you owe. In Canada, the tax credit you receive for making donations on your personal tax return is 16.8% on donations up to $200 and 20.5% on donations over $200.
When donating through your corporation, the amount paid to a registered charity is a deduction against your income. The amount of tax savings will be equal to your corporate tax rate. For both personal and corporate donations, you can claim a maximum of 75% of your net income.
Whether you decide to make donations through your corporation or on your personal tax return, make sure it’s clear what you intend. For example, when you make your donation, you should write a personal cheque or withdraw the amount from a personal bank account if you want to claim it on your personal tax return. The same is true for donations through your corporation. The donation should be drawn on a company bank account.
For more information about charitable donations, check out these Canada Revenue Agency links:
It’s important to understand the guidelines set out by the Canada Revenue Agency in order to get the most benefit from your charitable donations. We recommend consulting with your accountant or tax advisor so you can make the best decision for your unique situation. If you have any questions, we’re happy to help. Fill out this form to get in touch.