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Corporate donations: Another way to give
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IN THIS ARTICLE min read
What is charitable giving?
Charitable giving provides an opportunity for Canadians to transfer assets to registered charities and support the causes that matter most to them. Incorporated business owners may wonder if they should make charitable donations personally or through their business. This paper will explain the advantages of donating through a corporation versus personal donations.
Tax deductions on corporate donations
When donating through a corporation, the company is entitled to a tax deduction for the donated amount, equal to its fair market value. By reducing taxable income, the corporation can reduce its tax liability. Corporations are limited to a charitable deduction of up to 75% of net income in a year and may carry over excess donations for a period of five years. The value of the tax savings is dependent on whether the charitable deduction is used to reduce income subject to the small business tax rate, the general corporate tax rate, or corporate investment tax rate. In Quebec, the general rules are substantially the same. However, the Quebec Taxation Act provides for certain adjustments that may increase the amount deductible in specific circumstances. The carry-forward period remains five years.
The example below compares the donation made by the corporation versus paying a salary to the shareholder in order to make the donation personally. For illustrative purposes, the corporation and shareholder are resident in Ontario. Corporate donation is used to reduce income subject to the small business tax rate and shareholder is in the top personal tax bracket. Donations are in excess of $200. 2026 tax rates apply.
Corporate vs. personal donation (funded by salary)
| Corporate donation | Personal donation |
|---|---|---|
Business |
|
|
Active business income | $100.00 | $100.00 |
Less: charitable donation | ($100.00) | - |
Less: salary paid | - | ($100.00) |
Corporate taxable income | $0.00 | $0.00 |
Corporate income tax | $0.00 | $0.00 |
Corporate cash remaining | $0.00 | $0.00 |
Personal |
|
|
Salary received | - | $100.00 |
Personal income tax (53.53%) | - | ($53.53) |
Charitable donation | - | ($100.00) |
Donation tax credit (50.41%*) | - | $50.41 |
Net cost of donation | $100.00 | $103.12 |
Corporate donation advantage | $3.12 |
|
Assumptions
Assumption | Value used |
|---|---|
Province | Ontario |
Corporate tax rate | 11.2% (CCPC eligible for the Small Business Deduction) 26.5% (general corporation) |
Personal marginal tax rate | 53.53% |
Donation tax credit | 50.41%* |
Active business income | $100.00 |
Charitable donation | $100.00 |
Notes:
Corporate tax rates are based on the combined federal and Ontario rates applicable after July 1, 2026: 11.2% for a CCPC eligible for the Small Business Deduction and 26.5% for a General Corporation.
Although the applicable corporate tax rate depends on the type of corporation, it does not affect the outcome of this illustration because both the charitable donation and the salary deduction reduce corporate taxable income to nil.
*The 50.41% donation tax credit assumes the donation qualifies for the highest marginal charitable donation tax credit in Ontario.
As the above table highlights, a $100 donation made by a corporation is slightly more advantageous than paying salary and making a donation personally, under these assumptions.
Another option is to pay a dividend, instead of salary or bonus to fund the personal charitable donation. Because of integration, the results are similar to the salary option. That is, a slight advantage is still available to a corporate versus a personal donation.
Additional benefit of the capital dividend account (CDA)
If there’s a surplus of assets in the corporation that can be withdrawn, as well as securities that have unrealized capital gains, the overall tax benefits can be increased by making a donation of the securities in-kind from the corporation.
As with personal donations, when the securities are liquidated by the charity, the capital gain is eliminated for the corporation. Therefore, 100% of the capital gain is credited to the corporation’s capital dividend account (CDA). The CDA can distribute tax free capital dividends to shareholders.
The example below illustrates the value of choosing to donate $50,000 worth of securities in mutual funds through the corporation instead of liquidating the assets and donating $50,000 in cash. It is assumed the corporate donation deduction is used to offset passive income at a 50% tax rate.
| Sell securities and donate cash | Donate securities directly through corporation |
|---|---|---|
Fair market value of donation (X) | $50,000 | $50,000 |
Adjusted cost base | $10,000 | $10,000 |
Capital gain | $40,000 | $40,000 |
Taxable capital gain | $20,000 | $0.00 |
Tax on capital gain @50% (Y) | $10,000 | $0.00 |
Value of tax deduction @50% (Z) | $25,000 | $25,000 |
Amount added to the capital dividend account | $20,000 | $40,000 |
Total cost of donation (X+Y-Z) | $35,000 | $25,000 |
To calculate the total cost of the donation, we take the fair market value of $50,000, add the tax to the capital gain ($10,000) and then subtract the value of the tax deduction from the donation ($25,000). Note: an adjustment must be made to factor in each province or territory’s tax rate. Total cost of donation = X + Y – Z.
Active business versus investment holding company
An in-kind donation can be made from either an active business or an investment holding company, with the same benefits. It may make sense to consider an in-kind donation from the holding company because taxation of investment (“passive”) income is much higher than the tax on active business income. The 75% limit on the deduction from income and the five-year carry-forward apply to both.
Summary
Charitable donations can be made either by individuals, corporations or investment holding companies. The best decision as to which to choose varies from situation to situation. Donors should discuss the best option for their unique circumstances with their financial advisor.
Mackenzie developed the Mackenzie Charitable Giving Program with the Strategic Charitable Giving Foundation, a registered Canadian charity. Donations under the program are irrevocable and vest with the Foundation. The information is general in nature and is not intended to be professional tax advice. Each donor’s situation is unique and advice should be received from a financial advisor. Please read the program guide for complete program details, including fees and expenses, before donating.
Commissions, trailing commissions, management fees and expenses all may be associated with mutual funds. A charitable administration fee and charitable operating expenses will also apply. Please read the prospectus before investing and the program guide before donating. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. The information is general in nature and is not intended to be professional tax advice. Donations should not be made for tax considerations alone. Each donor’s situation is unique and advice should be received from a financial advisor.
The content of this article (including facts, views, opinions, recommendations, descriptions of or references to, products or securities) is not to be used or construed as investment advice, as an offer to sell or the solicitation of an offer to buy, or an endorsement, recommendation or sponsorship of any entity or security cited. Although we endeavour to ensure its accuracy and completeness, we assume no responsibility for any reliance upon it.
This should not be construed as legal, tax or accounting advice. This material has been prepared for information purposes only. The tax information provided in this document is general in nature and each client should consult with their own tax advisor, accountant and lawyer before pursuing any strategy described herein as each client’s individual circumstances are unique. We have endeavored to ensure the accuracy of the information provided at the time that it was written, however, should the information in this document be incorrect or incomplete or should the law or its interpretation change after the date of this document, the advice provided may be incorrect or inappropriate. There should be no expectation that the information will be updated, supplemented or revised whether as a result of new information, changing circumstances, future events or otherwise. We are not responsible for errors contained in this document or to anyone who relies on the information contained in this document. Please consult your own legal and tax advisor.