Corporate Donations: T2 Schedule 2 (T2SCH2)

Corporate donations play a crucial role in supporting various causes and organizations across Canada. Unlike individual donations, which primarily derive from personal funds, corporate contributions stem from business operations. These donations serve as a powerful mechanism for companies to give back to their communities, enhance their public image, and align with social responsibility initiatives.

The main difference between corporate and individual donations, other than the source of donations, is the effect of donations on the corporation’s income tax return. When a corporation makes a donation, it is entitled to a tax deduction against its income which reduces its taxable income. In contrast, when an individual makes a donation personally, the individual is entitled to claim a tax credit. This tax credit is an amount that reduces its taxes owing. The eligible amount of the corporation’s gifts can be claimed up to the limit of 75% of its net income for the year.

When a corporation makes a charitable gift, the eligible amount of that gift is the fair market value (FMV) of the gifted property deducted by any benefit the corporation received by their contribution. For example, if a corporation donates $500,000 to Ford Philanthropy, Ford Motor Company’s global philanthropic arm, and in exchange the corporation receives $50,000 discount on purchase of Ford trucks, the eligible amount of the gift in this instance is $450,000 (500,000-50,000).

Corporations have the option to carry forward the eligible amount of gifts made in a particular year and claim them on their tax return for any of the next 5 years. For gifts of ecologically sensitive land made after February 10, 2014, corporations can carry them forward for up to 10 years.

Let’s look at an example: Softron Tax made a generous donation of $150,000 to a registered charity in the current tax year. The corporation’s net income for the year is $500,000. Softron’s eligible donation amount is $375,000 (500,000 x 75%). The eligible amount cannot exceed this limit, therefore the eligible amount for the donation is $150,000. The company can use all or part of the donation in the current year or use the donation within the next 5 years.

EmTo claim donations, corporations are required to fill out and attach T2SCH2-Charitable Donations and Gifts to their T2 income tax return. The form is used by corporations to claim any of the following:

Part 1 - the eligible amount of charitable donations to qualified donees: This section focuses on the reconciliation of charitable contributions:

opening balance of donation at the end of previous tax year

[deducted by] charitable donations expired after five tax years

[added by] charitable donations transferred by amalgamation or wind-up of a subsidiary

[added by] charitable donations made in the current year [deducted by]

[deducted by] amount applied in the current year against taxable income.

The remining balance is the closing balance for the current fiscal year which will become the opening balance in the next tax year.

Part 1(2) - the Ontario, Nova Scotia, and British Columbia food donation tax credits for farmers: This section of the form is dedicated to the calculation of the food bank or program donation tax credit in each of those provinces. For all of the provinces, the amount of the non-refundable tax credit is equal to 25% of the donation. The amounts from this section are transferred to Schedule 5 for the calculation of the non-refundable credits.

Part 3 - the eligible amount of gifts of certified cultural property: Under the Cultural Property Export and Import Act, corporations can donate cultural property to Canadian institutions and public authorities that have been designated by the Minister of Canadian Heritage. These gifts can include art, archival material, musical instruments, military objects, and technological objects.

Part 4 - the eligible amount of gifts of certified ecologically sensitive land: Ecological Gifts Program  Canada allows both individual and corporate landowners to donate ecologically sensitive land to qualified recipients, ensuring its conservation. Corporate donors can deduct the gift amount directly from their taxable income, while individual donors receive a non-refundable tax credit.

Part 5 - the additional deduction for gifts of medicine made before March 22, 2017: Before March 22, 2017, corporations in Canada were eligible for an additional deduction in respect of eligible gifts of medicine made to an eligible charity. This provision allowed corporations to deduct a portion of the value of donated medicine from their taxable income. However, the additional deduction was repealed for gifts made on or after March 22, 2017. Despite this change, the general income tax treatment of donations made by corporations to registered charities, including gifts of medicine, remains unaffected.

Part 2 of the form is dedicated to the calculation of “Maximum allowable deduction for charitable donations” and therefore omitted from the above list.

Part 6 of the form is a table that outlines all donations and gifts from previous years available for carry forward by year of origin. This will help the preparer determine the amount that could expire in following years.

For further information please contact Taxtron Support at 416-491-0333 or visit www.taxtron.ca