Last updated: Dec. 22, 2023
The first question you need to ask is, “Will you receive a registered charitable receipt?”
When preparing taxes, you receive a greater tax benefit as an individual for donations made to a registered Canadian charity than you would as a corporate entity.
Donations to a registered charity, e.g., Canadian Cancer Society or The Salvation Army, should be donated personally. The amount could be taken from your corporation as a shareholder draw, but the donation will provide a tax receipt issued in your name.
If you’re donating money to a non-profit organization that isn’t a registered charity, e.g., Shrine Circus or Cops for Tots, you should ask for a receipt and the funds can be expensed as advertising.
As long as there is some type of public recognition by the organization then a promotion expense can be claimed.
Any type of donation where a tangible item is received in return, such as winning a charity auction or prize from a raffle, would not be a deductible expense.
However, you could bid on an item at a charity auction and then gift the item to a client or to an arm’s length (unrelated) employee, provided it’s a CRA defined occasion, such as an employee Christmas gift. These instances would be legitimate business expenses.
Donation of Services
It’s a bit more complicated when you donate services.
CRA considers you to have received payment for the service at a value equal to the donation receipt. As an example, if you value the service at $3,000 plus HST and receive a registered charity tax receipt for $3,390, CRA considers you to have collected $3,000 in revenue and $390 in HST.
You’ll need to declare the income and remit the HST. However, the entire value of the receipt $3,390 is considered an advertising expense with no HST paid. So, the corporation is out the amount of the HST.
A better strategy for donation of services is to have the charity pay the invoice and you can make a donation with personal funds to the charity.
Generally, donations to a registered charity made personally will have the greatest tax benefit.
In the case of donation of services, you can’t avoid paying the HST. It would be your decision whether to make a personal charitable donation for the full amount of the service, including HST, or just donate the invoice amount excluding HST.