Moore
June 2016 Newsletter

Do you make donations to charities located in the United States? They may be eligible for a tax credit on your Canadian tax return in one of several ways.

First, donations to many foreign universities qualify as charitable donations in Canada. The institution must be listed in Schedule VIII of the Income Tax Regulations, which lists universities that are known to have significant numbers of Canadian students and that have applied to be on the list. Schedule VIII lists 552 institutions, of which 450 are in the United States. The list runs alphabetically from Abilene Christian University (Abilene, Texas) to Yeshiva University (New York, NY), and includes virtually every important U.S. university and college. You can find Schedule VIII at the end of the Income Tax Regulations on www.CanLii.org (which is a handy source of all Canadian laws, regulations and reported Court cases).

(The Canada Revenue Agency has a measure of control over foreign universities for purposes of Canadian donations. If the CRA determines that a foreign university is not complying with the requirements as to how the funds should be used, the CRA can “de-register” the university and it will no longer qualify for donations.

Thus, for example, if a U.S. university is involved in a scheme to issue donation receipts for “donations” that are really payments for tuition, are paid back to the donor, or are routed to causes that are not part of the university’s normal function, it could be deregistered and no longer qualify for Canadian donations.)

Second, a donation to any other U.S. charity will generally qualify for Canadian credit if you have U.S.-source income. This rule is found in Article XXI, paragraph 6 of the Canada-U.S. tax treaty. The charity must be one that “could qualify in Canada as a registered charity if it were a resident of Canada”. Donations can be claimed for up to 3/4 of your “income arising in the United States”. This could include business income from U.S. clients, or investment income arising in the U.S. such as dividends or interest on U.S. stocks or bonds within your Canadian brokerage account. The CRA may have a more restrictive interpretation (such as requiring you to be operating a business in the U.S.), but the Courts have yet to determine the scope of this rule.

The CRA has stated that any organization that qualifies under section 501(c)(3) of the U.S. Internal Revenue Code will qualify for this relief. If you want to know whether a particular organization you are donating to qualifies under section 501(c)(3), you can search for it on www.guidestar.org.

Third, some foreign charities have a “Canadian Friends of…” or similarly-named organization in Canada, which is registered as a Canadian charity. The “Canadian Friends” can receive donations and use them to operate projects that benefit the foreign charity, and will issue you a Canadian tax receipt which you can use on your Canadian tax return like any other Canadian charitable donation. If you are considering a donation to a U.S. charity and cannot obtain Canadian tax relief under either of the first two ways, ask the charity if it has a parallel Canadian charity that can accept donations for it, or check the CRA web site at cra.gc.ca/charities.

Fourth, if you live near the border and commute to a place of employment or business in the U.S., and that is your chief source of income from the year, then you can treat donations to U.S. charities as though they were to Canadian charities. This rule is found in subsection 118.1(9) of the Income Tax Act.

Last modified on June 14, 2016 12:00 am
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