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Personal vs Corporate Donations - The Alberta Perspective

02/02/2015


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.