The season for giving is upon us. As such, we all have our favourite charitable organizations we feel good to donate our money or time. When your small business gives, it sends a strong message to the community of the charities you care for and support. The notion of ‘giving back’ or ‘paying forward’ can provide a boost for your small business to be recognized in your community. There are many clever ways a small business can make a huge impact without having to resort to a big budget.
For sole proprietors and partnerships, charitable donations are not a tax deductible business expense. The donation is recognized as a tax credit on their individual tax return. For a business partnership, the donation amount can be reallocated on a pro rata basis to each partner.
The benefits for your small business donating to charity
- Shows you care for your community as a place to live and enjoy
- Recognition of a good reputation from individuals and businesses in the community
- Increase new business connections and networking
- Recognized as a community leader
Contribution of Services
Contribution of your time and services to a charity does not technically qualify as a donation by CRA standards. However, CRA recognize services as a donation when a charity provides payment for the service and in return the donor (the small business owner providing the service) gives back the payment as a donation.
Donation of a charitable gift, the cost of the gift becomes a valid deductible expense whether you are a sole proprietor, partnership or a corporation. There are no limitation on the amount of charitable gifts your small business can donate as long as it is reasonable.
As an example your small business is sponsoring a charity event and is paying to be included on a program or flyer. This is seen by CRA as a bona fide advertising expense and is deductible.
How tax credits work
The amount donated is deducted from the amount of taxed owed. CRA allows you to delay claiming up to five years in which you donated. This means you can accumulate all your donated tax receipts with the five year period to claim tax credits.
Last year take advantage of “Super Credit”
If you are a sole proprietor or business partnership, you might be able to take advantage of Canada Revenue Agency (CRA) Super Credit. To qualify you need to be a first-time donor to claim an addition 25% “super credit” on the first $1000 donation. This can only be claimed once in the tax years between 2013 and 2017.
So if you have been considering donating to one or several charities you believe and have a passion for their cause, this is the last year to take advantage of CRA super credit. Please note super credit only applies to individual first time donors and not businesses.
Limits to how much can be claimed
If you routinely donate to your favourite charities, you are still eligible to claim tax credits up to 75% of your net income for the year; up to 100% the year of death and the preceding year of death. Individual charitable donations are eligible for both federal and provincial tax credits. Federal tax credits are the same amount across Canada. Provincial credits vary depending on province of residence. Corporations have the same 75% limitation and can claim donations as a tax deduction against their taxable income.
Remember to always ask for a tax deductible receipt from every charitable organization you donate money to. Contact us today if you like to learn more how donating to your favourite charities can become a taxable benefit for your small business.