Maximizing Tax Efficiency Through Strategic Corporate Charitable Donations and In-Kind Contributions
Introduction
Discover how private corporations can leverage charitable donations to make a meaningful impact while optimizing tax benefits. In this course, we'll explore the strategic and financial advantages of cash and in-kind donations, helping you unlock their full potential for both philanthropy and corporate planning.
How to add Charitable donations
Step 1:
- Select the "Client Data" tab at the top of the screen, click "Current data- Corporations'.
Step 2:
- Navigate to the bottom of the screen and choose the "Charitable Donations" option to proceed.
Step 3:
- At the bottom of the screen, you have the option to choose either "Charitable Donation - Cash" or "Charitable Donation - In-Kind."
- Add a Charitable donation cash amount, to model a donation from the corporation's cash flow.
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Add a Charitable donation in-kind to model the donation of securities.
Charitable donations made in-kind are directly sourced from the corporation's investment account without impacting cash flow. The capital gain on donated securities is offset by a deduction, which can be found on Corporation Tax - Schedule 6, Line 895. Additionally, the Capital Dividend Account (CDA) balance increases by the full amount of the gain on donated shares. This updated CDA balance is reflected in the Corporation Projected Balances report.
For both types of corporate donations:
Corporation tax impacts
To enhance support for charitable donations, two new tax forms have been introduced in Corporation Tax:
- Schedule 2 - Charitable Donations and Gifts: This form calculates the total available donations, the maximum allowable deduction, the applied deduction, and the charitable donation closing balance.
- Charitable Donation Carryforwards Worksheet: This worksheet tracks donation carryforwards year by year and identifies when donations are applied or have expired.
Several existing corporation tax forms have been updated with new lines to support corporate charitable donations:
- Schedule 125: A new Line 8522 - Donations has been added.
- T2 Taxable Income Form: Introduces a new line, Reference 311 - Charitable Donations from Schedule 2, where donations are deducted to determine the taxable income.
- Schedule 6 - Summary of Dispositions of Capital Property: Features a new Line 895 - Gain on Donated Shares, which excludes the gain on in-kind share donations from being taxed, ensuring accurate reporting and compliance.
These updates streamline the process of integrating charitable donations into corporate tax filings while ensuring adherence to tax regulations.
Other Reporting Impacts
- A Charitable Donations column has been added to cash flow activity reports, including Corporation Projected Outflows and Corporation Detailed Activity reports. This column reflects only charitable donations made in cash, as in-kind donations bypass cash flow reporting.
- Additionally, the detailed audit report, Corporation Projected Activity, now includes a dedicated row for each charitable donation, capturing both cash and in-kind contributions for comprehensive tracking.