December 9, 2015
Tax Implications of Donating Personally versus Corporately
Many people may not be aware, but approximately 75% of donors are individuals – and although big business, foundations and government play a big role in supporting nonprofits, the majority of donors to various causes are individual people like you and me.
I was reading an article by Kim Drever, MNP Tax Advisor, from February 2, 2015 (“my birthday”) which she advised to share, and therefore the majority of this Blog posting will be in her words.
In Alberta, there is an added incentive to make donations personally, as each dollar of donations (in excess of $200) results in a 50% charitable donation tax credit. In most other provinces, the donation credit is the highest personal tax rate on employment income.
To demonstrate this in action, say you want to donate $1000 to your favourite charity. You can decide to either make the donation through your company or take the funds from the company, pay personal tax on them and then make a personal donation.
Corporate tax rates are 14% for income subject to the small business deduction and 25% for active business income in excess of $500,000 for the associated group. A corporate donation will result in between $140 to $250 of corporate tax savings.
If the owner wants to make a personal donation of $1000, it will be necessary to remove more than $1000 from the company as either dividends or salaries to plan for the personal taxes that will be owing on the income. If a salary is paid from the company, there will be a corporate expense for the salary, thus a reduction of corporate taxes. In addition, there will be personal taxes on the salary of 39% and a tax credit on the donation equal to 50% of the donation.
In contrast to other provinces, Albertans generally have an incentive to make a donation personally rather than through their company. However, this debate should be analyzed whenever you are considering making a significant donation. Contact your accountant or tax specialist to help you determine the best method of making the donation.
I hope you enjoy my postings and find this information useful. Please let me know what you think in the comment section of my Blog http://raveresults.ca/blog/ .
If you would like to learn more about how my experience and skills would benefit your nonprofit, or a nonprofit you may be associated with, please do not hesitate to get in touch with me as I would be pleased to meet and discuss the opportunity of working together.
Happy Holidays and I look forward to reconnecting with you in 2016.
Mitchell Ravvin, BComm, PFPC, CFRE
Rave Results Inc.
7436 21A Street SE
Calgary, AB T2C 0V9
Rave Results Inc. is a professional fundraising service specializing in assisting mid-size nonprofit organizations. Areas of expertise include: Donor Development, Major Gift Fundraising, Sponsorship, Planned Giving, and both Annual and Capital Campaigns.