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Cross-Border Giving Considerations

There are a variety of non-tax and tax reasons to support charities. When deciding which charities to benefit, many Canadians have philanthropic objectives that extend beyond the border.

First, it’s important to understand the Canadian tax benefits of charitable giving. Under Canadian tax rules, a donor may claim tax credits for total gifts in a year up to 75% of his or her net income, subject to exceptions for gifts of certified cultural property or ecologically sensitive land (a donor may be able to claim up to 100%). The limit for using the charitable donation tax credit is increased from 75% to 100% of net income in the year of death. These charitable deductions apply when gifts are made to a “qualified donee” under the Income Tax Act, which include for the most part Canadian registered charities.

What happens when a Canadian wants to benefit a charity that does not nicely fit into the box of “Canadian registered charity”? For example, what if someone is inclined to make donations to registered charities just across the border in the U.S.? The same tax benefits noted above may not apply.

Under the Canada-U.S. Tax Treaty, Canadians are able to donate to U.S. registered charities and get Canadian tax relief. Subject to a few exceptions, the tax relief available is equivalent to that available in Canada and is equal to 75% of the donor’s U.S. source income. Unless a Canadian donor has a flow of income from the United States, this provision does not provide the desired tax relief.

However, there are a few ways to make gifts across the border and still receive Canadian tax relief.

A Canadian tax credit will be available if a person lives near the border in Canada and commutes to a principal workplace or business in the U.S. and that employment or business is the person’s main source of income for the year. This may capture Canadians who live in Windsor and who work in Detroit, for example.

A Canadian tax credit will also be available if the gift is to a foreign charity that is considered a “qualified donee” under the Income Tax Act, including, for example:

  • the United Nations and its agencies;
  • a foreign charity that has received funds from the Canadian federal government within the last or preceding year (the list can be found here); and
  • a foreign university customarily attended by Canadians (the list can be found here).

Another method of gifting to a foreign organization is indirectly through a Canadian registered “friends of” organization. This may, for example, be a sister organization to a charity in the U.S. which is a registered charity in Canada.

Of course, in considering how much effort to spend in ensuring you can claim a tax credit, you should factor in the amount of the gift. For example, there is a substantial difference in the potential tax relief for a $10,000 gift versus a $10,000,000 gift.

It’s critical to weigh both the non-tax and tax considerations when fulfilling charitable objectives, and if making a donation to a charity across the border is desirable for personal or other reasons, don’t let the tax tail wag the dog!

– Marly Peikes

The comments offered in this article are meant to be general in nature, are limited to the law of Ontario, Canada, and are not intended to provide legal or tax advice on any individual situation. Before taking any action involving your individual situation, you should seek legal advice to ensure it is appropriate to your personal circumstances.
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