Why business owners should include corporate philanthropy: Five key benefits

By Tony Maiorino

For incorporated business owners, corporate giving can exist in many ways and offer a range of benefits. Looking at it from a holistic lens, we know that the act of corporate philanthropy, regardless of the form of giving, is integral for creating meaningful impact in and across communities. At the same time, for a business and its owner, corporate giving can be an important part of overall planning and strategy — think tax planning, attracting and retaining talent, and building brand, for example.

Findings from the CanadaHelps Giving Report show that financial gifts to charities from primary funding sources such as corporations are in decline. This may present an important opportunity for those in the philanthropic sectors to highlight the potentially multi-faceted benefits that corporate giving may provide for corporations and their owners.

Here are five key reasons for those with corporations to focus on corporate philanthropy.

1. Utilizing the corporate donation tax deduction

From a tax planning perspective, charitable donations can be an important part of the conversation as it relates to a corporation’s taxable income. For incorporated business owners who make a donation through their corporation to a qualified donee, the corporation is entitled to a tax deduction (for the donation amount) against their taxable income. By making a corporate donation, corporations can reduce their taxable income, thus decreasing their tax liability.

In general, a corporation can claim a deduction for charitable donations up to 75% of the corporation’s net income for the year. And, if the corporation doesn’t want to claim the full donation amount in a particular year, donations can be carried forward for up to five years for tax purposes; this offers a degree of flexibility for the tax deduction to be applied in a year or years where the corporation’s tax liability may be higher, helping to offset those taxes.

2. Considering capital gains: Donating publicly traded securities

In some situations, it may be tax effective for a corporation to donate certain types of securities directly to a qualified donee, rather than make a cash donation. This may be the case, for example, if a corporation has publicly traded securities with large, accrued capital gains. When using this approach, the corporation can deduct the full market value of the securities donated against its taxable income as a charitable donation, reducing the corporation’s tax bill.

Also, the capital gain on the securities donated to a qualified donee may be reduced or eliminated (dependent upon certain qualifying criteria that the donated securities must meet). Another benefit when qualifying securities are donated in-kind is that the full capital gain associated with the donated securities is added to the capital dividend account. This may increase the amount that can be withdrawn from the company tax-free. In all instances, before making a donation of securities, it’s important to consult with a qualified tax advisor and confirm that the registered charity can accept this kind of in-kind donation.

3. Being aware of Alternative Minimum Tax (AMT)

Still within tax planning, Alternative Minimum Tax (AMT) is another important consideration for those seeking to reduce their taxes payable through making a donation. AMT is a tax that aims to ensure every Canadian pays a minimum amount of tax and that prevents some high-income earners from paying little or no tax because of certain tax incentives.

With some recent changes to AMT, many were left re-evaluating their charitable giving plans because of the impact on the tax treatment of charitable donations by individuals. As a result, for tax purposes, corporate charitable giving can be a more attractive option (versus making donations personally).

This approach may be advantageous from a tax perspective because AMT applies only to individuals and not to corporations.

Within wealth planning, among current topics related to charitable giving, how AMT may affect one’s charitable giving continues to be a common question. With that in mind, it’s crucial for individuals to work with a qualified tax advisor to determine if AMT would apply and to stay informed on further potential changes.

4. Attracting talent and building employee loyalty

As part of business owner planning, a key question many may ask is how to attract top talent and foster an environment where employees are keen to stay long-term. Alongside financial incentives and offerings like employer-sponsored savings plans, benefits programs or enhanced retirement benefits, a structured and well-communicated corporate giving program may function as a competitive edge to draw talent to the business and boost employee retention and engagement.

According to one study from Imagine Canada, among those surveyed, 50% of job seekers  considered their employer’s reputation for charitable and community work before accepting the job. And employees who feel their company is highly committed to community are more satisfied with their jobs, are likely to recommend their company to others, and strongly agree that they share a common social purpose with their company.

5. Generating business and community impact

For incorporated business owners and their companies, a thoughtful and well-defined corporate giving program may also be impactful to build trust and expand brand awareness and reputation among clients or customers. In times when a highly competitive marketplace exists across many industries, corporate philanthropy can be a significant differentiator. For example, when clients or customers see a business making efforts to help communities or causes through corporate giving, research indicates that can positively influence consumer decisions. Or, when a business pursues corporate philanthropy and supports causes or charitable organizations that align with the company’s core values — or that resonate with a client’s or consumer’s values—studies show that brand loyalty is more likely to increase, and people will tend to build a long-term connection to that business or brand.

From a community perspective, a company’s corporate giving can also serve to strengthen ties with the communities it serves and/or operates within. With a long-term commitment to community investment, businesses can play a vital role in creating sustainable impact and making a difference, locally or beyond, through their corporate giving programs.

Tony Maiorino, is Head of Family Office Services team, RBC Wealth Management Canada.

Tony has over 30 years of experience advising high-net-worth clients in Canada, and often contributes to publications on various topics within wealth planning. His team of over 250 professionals provides legal, tax and financial planning expertise to help advisor teams within the Wealth Management Canada segment deliver integrated wealth management and planning to high-net-worth clients and their families. Learn more.