Corporate charitable giving – your client’s most generous asset?
By Chris Warner FCSI CIM CFP PFP | Wealth Advisor and Client Relationship Manager | Nicola Wealth Management Ltd., Victoria
Many people donate to charities in the same way that they approach new year’s resolutions – good intentions, but rarely the best execution. Like a new restrictive diet or a daily high intensity exercise regime, we are usually introducing a short-term remedy to create what we hope will be long-term impact. However, this may ultimately be less effective compared to smaller, more holistic lifestyle changes.
The evolution of donors is similar. Most donors begin by donating one-time gifts of cash, often around the holidays, as it’s quick and effective. Some will then sign up for monthly donations to spread out their cost. These are great options to be sure, but these can often be improved even further through comprehensive planning.
More experienced donors understand that they can give more for less by donating stocks or other in-kind assets to maximize tax benefits. The most seasoned philanthropists will typically draft an estate plan that includes considerable bequests to charities and non-profits. With all of these available options, even the savviest in this space often overlook a powerful tool sitting in plain sight; their own private corporations.
Canadian Controlled Private Corporations (CCPCs)
Entrepreneurs, dentists, doctors, lawyers, accountants, engineers, realtors, consultants, and other successful individuals will commonly incorporate CCPCs as part of their tax and savings planning. Yet, this mechanism rarely forms a part of their philanthropy.
This is a shame, as the corporation can be the most effective vehicle for charitable donations. If personal cash donations are the economy class of air travel, corporate in-kind donations can be an upgrade to first class; not everyone has access but those who do can receive unmatched benefits.
Donating as a CCPC
When a corporation donates qualifying securities (typically stocks, mutual funds, or ETFs) in kind, the corporation receives a triple benefit:
- No tax is paid on any unrealized capital gains on the investments.
- The corporation receives a Donation Tax Credit against income equal to the Fair Market Value of the donated securities.
- 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 donate up to 75 per cent 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.
- Assuming 2025 BC CCPC passive income tax rates of 50.67 per cent and a 50 per cent capital gains inclusion rate, the corporation avoids paying $1,266.75 in capital gains tax.
- Assuming 2025 BC tax rates, the corporation receives up to a 50.67 per cent credit (a reduction of $5,067) on tax from $10,000 of income.
- 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, it becomes clearer how beneficial making donations directly from the corporation can be.
Let’s further compare this against cashing in ABC Stock and paying it out personally, after tax has been deducted:
| Tax Rate Assumptions | BC 2025 |
|---|---|
| Capital Gain Inclusion Rate | 50.00% |
| Active Business Income (<$500) Rate | 11.00% |
| Active Business Income (>$500) Rate | 27.00% |
| Passive Business Income (Gross) Rate | 50.67% |
| Passive Business Income (after RDTOH) Rate | 20.00% |
| Ineligible Dividend Rate | 48.89% |
* E.&O.E – Not intended as tax advice.
| Liquidate Corporate Holdings | Amount |
|---|---|
| Market Value | $10,000 |
| Adjusted Cost Basis | $5,000 |
| Realized Capital Gain | $5,000 |
| Taxable Capital Gain | $2,500 |
| Net Corporate Tax, after RDTOH | $(500) |
| After-Tax Corporate Proceeds | $9,500 |
| Amount Added to CDA | $2,500 |
| Dividend Paid to Shareholders | $9,500 |
| Personal Tax | $(3,422) |
| Net After-Tax Proceeds | $6,078 |
Comparing against the corporate donation example, the charity receives only $6,078 from the same security instead of $10,000. The donor will receive a personal Donation Tax Credit (~$3,200), but this is still less than the $5,000 tax-free capital dividend that the corporation could pay to its shareholder(s) under the corporate donation.
Conclusion
Strategic philanthropy evolves just like any other long-term commitment. While one-time gifts and monthly donations play incredibly important roles, further efficiency can be created by aligning generosity with sophisticated financial strategy.
Experienced donors maximize their giving through stocks, estate plans, and other tax-smart approaches, yet many overlook one of the most powerful vehicles at their disposal: corporate donations.
If you have both the means and the mission, it’s worth exploring how corporate giving can amplify your impact.
_____________________________________________________________________________________________________________________________________________________________________________________________
Nicola Wealth Management Ltd. is a company organized under the laws of British Columbia, Canada. Nicola Wealth is a Registered Investment Advisor (RIA), registered with the United States Securities and Exchange Commission and is notice filed in the states of California, Hawaii, and Texas. The firm only transacts business in states where it is properly registered, or is excluded or exempted from registration requirements. Registration as an investment adviser with the United States Securities and Exchange Commission or any state securities authority does not constitute an endorsement of the firm, or confirm any particular expertise of an individual adviser, by the securities regulators. This presentation shall in no way be construed or interpreted as a solicitation to sell or offer to sell investment advisory services to any U.S. residents. The firm is not engaged in the practice of law or accounting.
All written content is for information purposes only. Opinions expressed herein are solely those of the author. Material presented is believed to be from reliable sources, however, we make no representations as to its accuracy or completeness.