Taxation, Charitable Donations & Corporations: Fa-la-la-la-la, la-la-la-la

UPDATE (November 10, 2025): This article has been updated to reflect changes in legislation, regulations, and accounting practices since the original date of publication (December 2, 2021).

As year-end approaches, many businesses look for ways to give back to their communities. Along with that generosity often comes a few questions about how corporate charitable donations are treated for income tax purposes. Here is a clear overview of the current rules and what to consider before making a gift.

Charitable donations: Individuals vs. corporations

The Income Tax Act treats charitable giving differently depending on who is making the donation. Both individuals and corporations are subject to similar limits: in most cases, the amount claimed in a year cannot exceed 75% of net income, and unused donations may be carried forward for up to five years.

Where the two differ is in how the tax benefit is delivered.

• Individuals receive a tax credit, which directly reduces tax payable.
• Corporations receive a tax deduction, which reduces taxable income.

Charitable vs. non-charitable (sponsorship) payments

A donation made to a registered charity or other qualified donee, supported by an official donation receipt, will generally qualify as a charitable donation and be subject to the rules above.

Businesses also frequently support community groups, events, or organizations that are not registered charities. These payments are not charitable donations for tax purposes, but they may still be deductible. Where the business receives promotional value, such as logo placement, advertising space, public mentions, or brand exposure, the CRA typically considers the payment to be sponsorship, which is treated as a regular business expense.

If you are unsure whether a receipt qualifies as a charitable donation or a sponsorship expense, your advisor can help you determine the correct treatment.

Using donations before they expire

If your corporation has donations carried forward from prior years that are at risk of expiring, it may be possible to adjust certain tax claims to increase income for the year. Examples include claiming less than the maximum capital cost allowance or deferring certain reserves.

These planning steps can help ensure that expiring donations are used, but they should be reviewed carefully with your tax advisor before being applied.

In-kind donations

Corporate donations don’t need to be made in cash. Many corporations donate property, equipment, or marketable securities. These in-kind donations are subject to special rules:

• The value of the donation is generally the fair market value (FMV) of the asset at the time of the gift.
• The corporation is considered to have disposed of the asset at FMV, which can trigger a capital gain or recaptured depreciation.
• The taxable portion of a capital gain is currently 50%.

There is an important exception for certain publicly listed securities. When shares or other qualifying marketable securities held as capital property are donated in-kind to a qualified donee, the taxable portion of the capital gain is nil. In other words, no tax is paid on the gain, and the corporation receives a donation deduction equal to the FMV of the securities.

Impact on the capital dividend account

For private corporations, the non-taxable portion of any capital gain is added to the capital dividend account (CDA). When a corporation donates publicly listed securities in-kind and the gain is fully non-taxable, the entire capital gain can usually be added to the CDA. This can increase the corporation’s ability to pay future capital dividends to shareholders on a tax-free basis.

Charitable giving can be an effective part of your tax strategy, but the rules are detailed and the tax impact depends on the type of donation, who you are donating to, and how the donation is structured.

If your corporation is planning year-end gifts or considering an in-kind donation, connect with your DMCL advisor. They’ll can help you understand the tax implications and ensure your generosity achieves the greatest benefit for your organization and your community.