In December 2014, my colleague Regan Exner wrote a blog titled
'
Should I Make Charitable Donations Personally or Through My
Company?' The blog you're about to read is an Alberta
perspective on the same issue, as there is a significant difference
in how this analysis should be handled for Alberta residents.
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 $10,000 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 $1,400 to $2,500 of corporate tax savings.
If the owner wants to make a personal donation of $10,000, it will
be necessary to remove more than $10,000 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.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
