Corporations receive deductions for charitable gifts rather than tax credits. Otherwise, the same tax rules regarding donations apply to both corporations and individuals.
Charitable gifts may be made by either an operating or a holding company, and may include cash, publicly traded (listed) securities or inventory.
Benefits to the donor company
Gifts of cash, publicly traded (listed) securities
- If a company donates cash, it receives an immediate donation receipt and a deduction for the receipted amount.
- If a company transfers publicly traded (listed) securities, it receives an immediate donation receipt for the full fair market value of the donated securities.
- If a company transfers publicly traded (listed) securities to a public charity, the company is taxed on 25% of the gain. If a company donates listed securities to a private foundation, the company is taxed on 50% of the gain.
- The tax-free portion of any capital gain is credited to the donor company’s capital dividend account.
Gifts from Inventory
- A charity may issue a receipt for a gift out of inventory that may be deducted by the donor company against up to 75% of its net annual income; however, the company must bring into income an amount equal to the fair market value of the donated item. As a result, there will be no net tax savings but the company may derive public relations and advertising benefits from having the product used by the charity.
Planned gifts can provide beneficial results for a donor but, in order to ensure that all relevant issues have been considered and addressed and that all Income Tax Act, Canada provisions and regulations are met, prospective donors should seek qualified legal and accounting advice.