Corporate Charitable Giving: Your Most Generous Asset?

The Corporate Giving Advantage

Many people donate to charities with great intentions, often through one-time gifts or spontaneous generosity. While these contributions are always meaningful, a more strategic approach can help organizations plan for the future and contribute to creating a lasting impact.

Most donors begin by making one-time gifts of cash, often around the holidays, as it is quick and effective. Some will then sign up for monthly donations to spread out their contributions. These are practical options, but they may be enhanced through holistic planning.

Many donors find they may be able to give more efficiently by donating stocks or other in-kind assets to optimize tax benefits. Some philanthropists include charitable bequests as part of their estate planning. Despite the many available options, one approach that's often overlooked is using private corporations for charitable giving.

Canadian Controlled Private Corporations (CCPCs) 

Entrepreneurs, dentists, doctors, lawyers, accountants, engineers, realtors, and consultants often incorporate this into their tax and savings planning. However, this structure is rarely leveraged for philanthropy. 

Using a corporation for charitable giving may be beneficial in certain circumstances. If personal cash donations are like economy-class air travel, corporate in-kind donations might be compared to business class, potentially offering advantages to those who qualify. 

Donating as a CCPC 

When a corporation donates qualifying securities (such as stocks, mutual funds or ETFs) in-kind, it may receive multiple benefits:  

1. No tax is paid on any unrealized capital gains on the investments.
2. The corporation receives a Donation Tax Credit against income equal to the Fair Market Value of the donated securities.
3. The corporation’s Capital Dividend Account (CDA) receives a credit for the unrealized capital gain. This allows the corporation to pay a tax-free dividend equal to that amount.  

Note that a corporation can only make a donation of up to 75% of its net annual income. If the Donation Tax Credit exceeds this limit, the unused credits can be carried forward for up to 5 years.  

Example: 

• Donate $10,000 worth of ABC Stock with a $5,000 cost base. 

1. Assuming 2025 B.C. CCPC passive income tax rates of 50.67% and a 50% capital gains inclusion rate, the corporation avoids paying $1,266.75 in capital gains tax. 
2. Assuming 2025 B.C. tax rates, the corporation receives up to a 50.67% credit (a reduction of $5,067) on tax from $10,000 of income.  
3. A CDA credit of $5,000 is received, allowing the corporation to pay a tax-free dividend of $5,000 to its shareholder(s). 

Based on the above example, we can see the potential benefits of making donations directly from the corporation. Let's compare this against cashing in ABC Stock and paying it out personally, after tax has been deducted: 

Comparing against the corporate donation example, the charity may receive $6,078 from the same security instead of $10,000. The donor will receive a personal Donation Tax Credit (approximately $3,200), but this is still less than the $5,000 tax-free capital dividend that the corporation could potentially pay to its shareholder(s) under the corporate donation. 

Corporate Giving: A Strategic Approach 

Strategic philanthropy evolves just like any other long-term commitment. While one-time gifts and monthly donations are valuable, there may be additional approaches to consider when planning your charitable giving.  

Many donors use various strategies, including donations of securities, estate planning and tax-efficient approaches. For business owners, corporate donations might be worth considering as another option.  

Connect with a Nicola Wealth Advisor today to learn more about how corporate giving could fit within your overall charitable planning. 

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