Month of Giving (Part 2): Tax Efficient Donating

Dec 20, 2022

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Many physicians in Canada have incorporated their practices, as there are significant tax benefits to doing so.

This then provides incorporated doctors with two avenues to donation:

  • Corporate Donations
  • Personal Donations

We are often asked, “should I make donations from my corporation, or make them personally?”

The answer is “it depends”, but the tax differential between corporate and personal donation is usually insignificant.

Generally, donations made from personal funds are more beneficial when you are in a lower personal tax bracket, as the tax credit rate may be higher than your average personal tax rate.

 For example, if you had taxable income of around $155,000, your average personal tax rate in Manitoba would be ~33%, but the tax credit you would receive on donations greater than $200 is 46.40%.

 Ex. If you donated $5,200, in the 33% tax bracket, you would receive a tax refund for your donation:

Personal Donation
Tax Rate 33% A
Personal Income Used for Donation $5,200 B
Tax on Income (A * B) $1,716 C
Less: Donation tax credit *(2,372) D
Tax Refund on $5,200 of Income (C– D) $656 E
*See Part 1 for calculation of credit

 

In contrast, donations made through the corporation provide roughly the same benefit when you are in the top personal tax bracket (example below).

 If you donate $5,200 personally, in the top tax bracket (50.40%), the donation credit received would not fully offset the tax levied on $5,200 of income due to the lower credit (25.80%) received on the first $200 of donations. 

Personal Donation
Top Personal Tax Rate in MB 50.40% A
Personal Income Used for Donation $5,200 B
Tax on $5,200 of Income (A * B) $2,621 C
Less: Donation tax credit *(2,572) D
Tax Payable on $5,200 of Income (C– D) $49 E
*See Part 1 for calculation of credit

 

If you instead donated the $5,200 directly from your medical corporation, the result would be as follows:

Corporate Donation
Corporate Income $5,200
Less: Donation (5,200)
Taxable Income Nil
Corporate Tax Nil

 

Tax difference = $49
($49 personal tax – $0 corporation tax)

 

Unlike the donation tax credit system used for personal tax calculation, eligible donations made with corporate funds are fully deductible from corporate income up to a maximum of 75% of the corporation’s net income each year.

Donations made through a medical corporation are subject to the same eligibility rules as donations claimed on a personal tax return.

 Please see “Month of Giving (Part 1): Donation Tax Credit Refresher” for more information on eligibility rules. https://bokhaut.ca/month-of-giving-part-1-donation-tax-credit-refresher/

If you would like a consultation regarding tax for physicians, please contact us.

* This article was prepared on December 20, 2022. Content is for informational purposes only and is not intended to be used as professional advice. Each taxpayer’s circumstances are unique. Bokhaut CPA makes no representation as to the accuracy and completeness of the information in this article and will not be liable for any errors or omissions in this information. 

 

 

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