Assuming a 46% tax rate, the business owner will be liable for approximately $4,600 of personal income tax.īased on our assumptions above, the $10,000 donation to charity will generate a tax savings to the business owner of approximately $4,600. In order to withdraw $10,000 from the corporation, the business owner will pay income tax on this additional income. Example 2įor your business owner client to have cash to donate to charity, she needs to receive a salary or dividend. How might things change if the business owner had to take income from the corporation in order to be able to donate? Let’s look at that situation in more detail. We assumed the business owner had the money on hand to donate to charity. Read: Alternatives to testamentary trusts As a result, it may be more advantageous for the business owner to donate to charity with personal sources of cash. Based on these assumptions, the after-tax cost to the corporation of donating $10,000 to charity is $8,450, compared to a cost to the individual of only $5,400. If, on the other hand, the client makes a $10,000 donation personally from cash on hand, the tax savings is approximately $4,600 ($10,000 x 46%), ignoring the lower tax credits on donations up to $200. The corporation is an Ontario-based Canadian-Controlled Private Corporation (CCPC) eligible for the Small Business Deduction, so a $10,000 charitable donation will reduce the corporation’s tax by $1,550 ($10,000 x 15.5%). Your client is an incorporated business owner who has $10,000 to donate to charity. Let’s consider three examples to see whether it’s better to donate personally or through a corporation. For both people and corporations, if the donation cannot be used in one year, it can be carried forward for up to five years.