A public foundation made gifts without strings attached to certain U.S. 501(c)(3) organizations during taxation years ending prior to 2022. Art. XXI(7) of the Canada-U.S. Treaty provided that, for purposes of Canadian taxation, a gift made by a resident of Canada in a taxation year to an organization - that was resident in the U.S., was generally exempt from U.S. tax, and could qualify in Canada as a registered charity if it were created or established and resident in Canada - as a gift to a registered charity, subject to potential numerical limitations.
Although the scope of what IRC s. 501(c)(3) encompasses is broad, CRA indicated that it accepted that a gift made by a Canadian resident to a U.S. 501(c)(3) organization will be an eligible gift for purposes of the s. 110.1 corporate deduction or the s. 118.1 individual credit.
However, the U.S. 501(c)(3) organizations generally would not be “qualified donees” given that, under the definition of that term in s. 149.1, “other than the United Nations or its agencies, only foreign entities that have applied for and were registered by the Minister are a qualified donee.” Accordingly, making such gifts were grounds for revocation of the registered charity status of the public foundation. The rationale for this narrow interpretation of Art. XXI(7) was that “the Canada-U.S. Treaty provides 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” and Art. XXI(7) by its terms did not extend to the requirements for being a Canadian registered charity.
The same analysis applied to gifts made to U.S. 501(c)(3) organizations by a private foundation or a charitable organization.