Worldwide businesses are acknowledging their corporate social
responsibility in addition to profit making goals. As significant
corporate resources are being allocated to these new efforts,
organizations need to consider different options and the related
advantages and disadvantages.
When a corporation wishes to support a registered charity, it
can do so by way of a gift or sponsorship. At law, a gift requires:
(i) an intention to donate property; (ii) acceptance of the gift;
(iii) delivery of the gift; and (iv) no corresponding benefit given
in exchange for the gift. According to the Income Tax Act (Canada)
("ITA"), there is a broader definition of a charitable
gift which permits the corporate client to receive a benefit in
exchange for a gift provided that the 'advantage' does not
exceed 80% of the fair market value of the gift. In contrast, a
sponsorship (which is not defined in the ITA) means a payment by a
corporate client to a charity in exchange for advertising or some
When a corporation makes a charitable gift it is entitled to
deduct from its taxable income the amount listed on the donation
receipt, provided that the deduction does not exceed 75% of the
corporation's taxable income and any excess amount can be
carried forward for five years. If the sponsorship is a reasonable
outlay or expense for the purpose of generating profit, then for
Canadian income tax purposes it would qualify as a business expense
that can be deducted from a corporation's taxable income. A
business expense differs from charitable gifts as a business
expense: (i) is not subject to the 75% limit; and (ii) cannot be
carried forward for five years. Therefore from a tax perspective,
charitable gifts and sponsorships have very similar tax benefits to
Gifts by corporations to charities can include gifts of gift
certificates, inventory, real estate, and leasehold interests but
excludes services because there must be a transfer of property for
there to be a gift. The ITA has special rules regarding certain
types of property that is donated to a charity: medicine,
inventory, life insurance, capital property, cultural property, and
Corporations may want to create a parallel charitable foundation
for their charitable giving. A charitable foundation may assist
with public perception since there will be a separate entity to
collect and manage money collected from staff, customers and others
and also it allows (within certain parameters) for an asset base to
be built up to support ongoing charitable activities if at some
point the corporate profits are down. These benefits need to be
weighed against the initial and ongoing creation and maintenance
costs of a separate governance structure, including bookkeeping and
preparation of financial statements.
There are a number of other legal and related issues to be
considered by a corporation looking at making a charitable
Do the Articles of Incorporation or other originating documents
authorize the activities being considered, in addition to the
corporation's view to profit?
What level of approval is required to approve a
donation/sponsorship - board approval, executive, other?
Should a board committee or other internal group created to
develop policies related to gifts/sponsorships?
For sponsorships, is there a sponsorship agreement outlining
clearly what benefits and information the corporate client is
entitled to receive?
A corporate client should also consider whether there are any
risks associated with working with a particular charity or project,
being mindful of: anti-terrorism laws; tax shelters rules;
appropriate levels of fundraising expenses; and the activities and
other policies of the charity.
Being aware of the issues may assist charities in discussions
with organizations when seeking donations and/or sponsorships.
Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
Under the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan Act and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions.
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