By Angela Hardbattle
Schedule 2 is for reporting charitable donations and gifts, so it will only appear in a corporate tax return if a corporation makes a charitable donation or gift during a year.
It is one of the reconciling items included on schedule 1 (see Faq #160). Donations are added back to the profit for accounting purposes and then deducted from net income for tax purposes.
Charitable donations and gifts are deductible for tax purposes; however, there are certain criteria that must be met in order for them to be deductible. If the criteria is not met, the expense could still be deductible for tax purposes, but may be included as part of advertising expenses rather than a donation.
In order for a charitable donation to be included on schedule 2, it must be considered a qualified donee by the Canada Revenue Agency (CRA) and be eligible to issue an official donation receipt. You cannot claim a charitable tax credit or deduction unless you have an official donation receipt. To check the list of qualified donees, go to: http://www.cra-arc.gc.ca/chrts-gvng/menu-eng.html
A corporation can deduct donations totalling up to 75% of its net income for tax purposes. In addition, if the corporation has no net income or a loss for tax purposes, the corporation cannot claim donations to create or increase a loss. Any excess donations can be carried forward for five following tax years. After five years, the donation tax credit is lost.
Furthermore, if a corporation plans on making significant donations to qualified donees, its owners may want to make the donations personally rather than through the corporation. Donations made personally receive a greater tax benefit than those made by corporations. For individuals in BC, the tax savings can be 46% compared to the BC corporate tax savings at 13.5% for donations.
Call us at Gilmour Knotts Chartered Professional Accountants to learn more about how to work with the complex set of rules of donation tax credits and deductions.
Angela Hardbattle, Dipl. T (Hons), CPA, CA, Staff Accountant, Gilmour Knotts Chartered Accountants, Email: firstname.lastname@example.org
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