By Lynne M. Westerhof

While many Canadian charities may wish to make gifts to US charities, there are several complex rules which limit the situations in which such gifts can be made. Before June 23, 2022, Canadian charities could only make gifts to qualified donees, and, with only a few exceptions, US charities did not meet the definition of “qualified donee” set out in section 149.1(1) of the Income Tax Act (“ITA”). If a Canadian charity were to make a gift to a non-qualified donee, then its charitable status could be revoked under subsections 149.1(2), (3), or (4) of the ITA.

It is in this context that CRA Views Interpretation 2022-0925731I7, dated February 15, 2023, considered whether paragraph 7 of Article XXI of the Canada-US Tax Treaty deems a US 501(c)(3) organization (“US Charity”) to be a qualified donee for the purposes of subsections 149.1(2), (3), and (4) of the ITA. If a US Charity were to be deemed to be a qualified donee, this would mean that a Canadian charity that made gifts to such an organization would not be at risk of having its charitable status revoked under subsections 149.1(2), (3), or (4) of the ITA. However, if a US Charity were not to be deemed to be a qualified donee by the Canada-US Tax Treaty and did not otherwise meet the definition of qualified donee, then revocation of charitable status would remain a possibility when Canadian charities made a gift to such an entity.

The CRA concluded that paragraph 7 of Article XXI of the Canada-US Tax Treaty did not deem a US Charity to be a qualified donee. This is because the Canada-US Tax Treaty is focused on providing “limited tax relief to residents of Canada and the U.S. who may be subject to double taxation on income and on capital imposed on behalf of each country.” While the CRA accepts that the tax relief measures in paragraph 7 allow a Canadian resident to claim a deduction against taxable income from US sources for an eligible gift to a US Charity, this does not mean that a Canadian charity can make gifts to a US Charity and claim a deduction. Canadian charities are exempt from tax (by virtue of paragraph 149(1)(f) of the ITA) and therefore would not be seeking relief from double taxation on income. Because subsections 149.1(2), (3) and (4) “govern the revocation of a Canadian charity’s registered status, and not the imposition of taxes,” the Canada-U.S. Tax Treaty does not apply to those provisions, and a US Charity is not deemed to be a “qualified donee” by that treaty.

The CRA briefly noted that as of June 23, 2022, the ITA has been amended so that Canadian charities may make “qualifying disbursements” to “grantee organizations” and that a grantee organization may “include a person, club, society, association or organization or prescribed entity, but does not include a qualified donee.” However, the CRA Views did not provide any comments about whether a US Charity could be considered a grantee organization to which a Canadian charity could make qualifying disbursements. Canadian charities that wish to work with charities in the US are encouraged to consult legal counsel regarding the situations in which funds can be provided to a US Charity.

​Read the June 2023 Charity & NFP Law Update