(a) A gift made by a Canadian-resident corporation to a U.S. resident charity described in Art. XXI, para.7 of the Canada-U.S. Treaty is deemed to be a “gift to a registered charity” for purposes of the Act, subject to an assumption that the corporation’s income only includes its income arising in the U.S. What is the meaning of U.S.-sourced income, e.g., would U.S.-sourced capital gains qualify? CRA responded:
[U]nless a specific meaning is given to that expression in the relevant Treaty provision, such as in Article XXIV (…paragraph 3) and Article XI (…paragraph 4), Canadian domestic sourcing rules should be used. These sourcing rules are generally set out in Folio S5-F2-C1… .
For the purposes of paragraph 7 of Article XXI of the Treaty, the CRA’s view is that “income” includes the taxable portion of a capital gain. Thus, if in a particular taxation year the corporation has a capital gain that is considered to have a U.S. source (see paragraphs 1.62 to 1.65 of the… folio), the taxable portion thereof would be considered “income arising in the United States”… .
(b) Is there an ability to carry forward amounts of such gifts that are not deductible because of the U.S.-source income limitation? CRA responded:
[T]he eligible amount of such gifts may be deducted by the corporation, generally up to 75 per cent of its income from U.S. sources, and… the five year carryover rule in paragraph 110.1(1)(a)…equally applies to [such] gifts