Should the corporation make the donation or should an individual make the donation?
We recommend that in most cases, an individual should make the donation not a corporation. This is because in most cases, the individual will get an almost 44% tax refund for making the donation and in most cases the corporation will get an 13% tax deduction for making the donation. Which would you rather have, 44% or 13%?
Do you donate a product or service or do you donate cash or something else?
Many people are in favour of donating a product or service. The reason is often that the donation is worth more than the actual cash cost to the donor. This is because the donor is the business that makes the product or provides the service and they might donate something worth $100 that actually costs them $80.
The difference is the normal profit on the item. You might think this is great! I get to claim $100 but it only cost me $80. Canada Revenue Agency can catch this missing $20.
The reason is that the “sale” of the donated product or service is supposed to be recorded on the books of the corporation or individual at market value (the same value as recorded on the donation receipt). Sometimes, the corporation missed recording the sale altogether and actually had a donation receipt and inventory shrinkage recorded. This is a form of “double dipping”. In the past, when I told clients about this, they were skeptical that Canada Revenue Agency would ever be interested or catch it. Unfortunately, I have to report that two years ago, Canada Revenue Agency has started requesting full documentation from donors.
They are requesting not just the donation receipt, but also “proof” of payment. For example, a cheque or in the case of donated products or services, other proof like invoices, etc.
Grant Gilmour, BSc (Hons), MBA, CPA, CA, CICA – ITC
Partner, Gilmour Group CPA’s
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