Charitable Gifting Through Private Corporations

A jar with money with a charity label.

The following article was written by James Buckley, a member of our Gift Planning Services Committee


With the season of giving almost upon us, making charitable donations, either personally or through your corporation will result in tax savings. However, depending on your particular situation, the benefit of donating through your corporation may maximize your tax savings while simultaneously achieving your giving objective.

Corporate Donation: Tax Deduction

Donating at the individual level provides a non-refundable tax credit, reducing any personal income taxes owing. Donating at the corporate level provides a deduction from income. When taxable income in the corporation is less than $500,000, the charitable donation deduction will reduce corporate taxes by $12.50 on the first $100 of donations made. When taxable income is greater than $500,000 the deduction will reduce corporate taxes by $26.50.

Let’s say you are an individual in the highest income tax bracket and you have already made more than $200 of donations personally during the year. It’s the holiday season and you want to make an additional charitable donation of $1,000.

  Donating Through a Corporation Donating Personally
Corporate income $1,000 $1,000
Salary paid to make personal donation (1,000)
Corporate donation deduction (1,000)
Corporate taxes NIL NIL
Personal income $1,000
Personal taxes (53.53%) (535)
Personal tax savings from donation tax credit 504
Personal Tax Payable     (31)

In this instance, the donation made directly from the Corporation results in no corporate taxes payable.  The donation of $1,000 made personally by taking salary or a bonus from the Corporation will result in a personal tax deduction as well as a corresponding donation tax credit.  However, the donation tax credit would not be sufficient enough to fully offset the personal income tax owing on the salary or bonus taken from the Corporation.  There would be a shortfall of approximately $31.

Now, let’s assume that you are not at the top income tax bracket with $100,000 of personal taxable income:

  Donating Through a Corporation Donating Personally
Corporate income $1,000 $1,000
Salary paid to make personal donation (1,000)
Corporate donation deduction (1,000)
Corporate taxes NIL NIL
Personal income $1,000
Personal taxes (43.41%) (434)
Personal tax savings from donation tax credit 464
Personal Tax Refund   30

In this situation, the individual will receive a donation tax credit in excess of the taxes owing on the salary or bonus taken from the Corporation.  There would be an advantage of approximately $30.

In summary, when an individual has taxable income greater than approximately $148,000 personally in 2019, it becomes more advantageous from a tax perspective to make the donation directly through your corporation. With taxable income less than $148,000, then the donation should be made personally. As tax rates change, so too does the income threshold.

Corporate Donation: Publically Traded Securities

If your corporation wishes to make a donation but doesn’t have the cash available, consider publically traded securities held. If the fair market value (“FMV”) of the securities is greater than the adjusted cost base (“ACB”), a sale of these securities will trigger a capital gain in the corporation. The corporation will pay tax on the taxable portion of the capital gain (50%), and the non-taxable portion (50%) is added to the corporation’s capital dividend account (“CDA”). The corporation can donate the proceeds from the sale and deduct this amount from its taxable income. The amount added to the CDA can be paid out to the corporation’s shareholders, tax-free.

Alternatively, your corporation may donate the publically traded securities directly, known as a donation in kind. This strategy may be preferred when the corporation holds securities with a large unrealized capital gain. The corporation will deduct the FMV of the securities donated from its taxable income, reducing its overall tax liability. The unrealized capital gain on the securities donated is eliminated and the full value of the capital gain is added to the corporations CDA, increasing the amount that can be paid out to the corporation’s shareholders, tax-free.

By donating publically traded securities held by your private corporation, you are able to eliminate capital gains tax on the securities donated, benefit from the tax deduction for the full FMV of these securities and increase the CDA balance, which will allow you to withdraw funds from your corporation tax-free.

Let’s say your privately-held corporation holds securities that it wishes to donate with a FMV of $10,000 and an ACB of $2,000. Your corporation earns investment income which is taxed at a combined federal and provincial tax rate of 50.17% and has sufficient taxable income to utilize the full tax deduction.

  Sell Securities and Donate Cash Donate Securities Directly (“in kind”)
FMV of securities (a) $10,000 $10,000
less ACB of securities 2,000 2,000
Capital gain 8,000 8,000
Taxable capital gain (50% inclusion) 4,000 NIL
Tax on capital gain (50.17%) (b) 2,007 NIL
Value of tax deduction (50.17%) (c) 5,017 5,017
Amount added to CDA 4,000 8,000
Total cost of donation (a + b – c) 6,990 4,983
Tax-free capital dividend paid to shareholder 4,000 8,000

Donating securities in kind results in $2,007 of additional tax savings to the corporation and an additional $4,000 that can be paid tax-free to the shareholder.

Making charitable donations through your corporation provides shareholders a chance to support their community while simultaneously receiving tax incentives. DJB tax advisors have extensive experience in advising clients on their philanthropic pursuits. Please contact your advisor to ensure your donations are going as far as possible to support the causes that you are most passionate about.

Head shot of James BuckleyJames Buckley, CPA, CA
Senior Manager, Taxation
Durward Jones Barkwell & Company LLP
Chartered Professional Accountants