For those in doubt about whether they may claim Canadian charitable gifts on their US taxes, there can be no doubt that the answer is a resound: “Yes!” Thanks to the generosity of my wife, I have been able to zero out my 2010 tax liability in the United States with our donations to my church and other Canadian registered charities.
Here is the proof text for this claim, directly from the Convention Between Canada and the United States of America With Respect to Taxes on Income and on Capital (emphasis mine):
5. For the purposes of United States taxation, contributions by a citizen or resident of the United States to an organization which is resident in Canada, which is generally exempt from Canadian tax and which could qualify in the United States to receive deductible contributions if it were resident in the United States shall be treated as charitable contributions; however, such contributions (other than such contributions to a college or university at which the citizen or resident or a member of his family is or was enrolled) shall not be deductible in any taxable year to the extent that they exceed an amount determined by applying the percentage limitations of the laws of the United States in respect of the deductibility of charitable contributions to the income of such citizen or resident arising in Canada. The preceding sentence shall not be interpreted to allow in any taxable year deductions for charitable contributions in excess of the amount allowed under the percentage limitations of the laws of the United States in respect of the deductibility of charitable contributions. For the purposes of this paragraph, a company that is a resident of Canada and that is taxable in the United States as if it were a resident of the United States shall be deemed to be a resident of the United States.
Congratulations! The Canadian negotiators of that tax treay did a good job, and you are able to reap the fruits oif their labor. Just make sure you have receipts for these contributions. Should you be audited the IRS requires receipts for any single contribution of $250 or more. Canceled checks will suffice for amounts under $250.
Note, however, there are significant limitations on the deductibility of CDN charitable donations for US purposes! For more informaton on similar limitations please see my recent blog on this topic at http://www.moodystax.com/blog/33-us-taxation-services/192-roy-berg-speaking-engagement-on-fbar-requirements-at-the-international-tax-conference-in-new-york-city.html
Donations for Canadian tax purposes typically result in a tax credit based on the fair market value of the total charitable gifts made by an individual to certain qualifying organizations, including a registered charity. Charitable donations are generally limited to 75% of the taxpayer’s net income, plus 25% of the taxable capital gains realized on the disposition of property donated to charity. Any unclaimed donations may be claimed in any of the following 5 taxation years.
In general, the tax credit available to individuals in respect of donations is a 15% federal tax credit for the first C$200 donated, and a 29% federal tax credit for donations above C$200. Provincial tax credits may result in a combined federal and provincial tax credit of roughly 50%.
Ordinarily, the disposition by a Canadian taxpayer of publicly traded securities will result in a capital gain or a capital loss. Notwithstanding the foregoing, the donation of publicly traded securities will no longer give rise to a taxable event.
The donation of flow-through shares to a charity acquired under an agreement entered into before March 22, 2011 also did not result in a taxable event under the provisions of paragraph 38(a.1) referred to above. As the tax cost of flow-through shares is deemed to be nil these provisions were especially tax advantageous when combined with the “flow-through” of certain tax expenses associated with eligible exploration, development and project start-up expenses to investors, who can deduct these expenses in calculating their own taxable income as if they incurred these expenses directly. For donations of flow-through shares made to charities on or after March 22, 2011, the capital gain that is eligible for the exemption will now be computed using the original cost of the flow-through shares, rather than the deemed tax cost of nil. As a result, capital gains realized on the donation of flow-through shares will only qualify for the exemption if and to the extent that they exceed the original cost of the flow-through shares donated.
The calculation of the tax benefit for charitable donations generally yields more favorable results in Canada than the U.S. In general, the deduction for charitable donations is limited to 20%, 30%, or 50% of a taxpayer’s gross income depending on the property contributed and the classification of the charity. A U.S. tax filer must report charitable donations as an itemized deduction on Schedule A of the Form 1040. Itemized deductions are restricted in two important ways: (1) they are subject to a reduction for high income earning taxpayers; and (2) if claimed, must be used in lieu of the standard deduction to which the taxpayer is otherwise entitled. In 2011, the standard deduction available to a U.S. taxpayer is $5,700. In other words, a taxpayer only realizes benefits from itemized deductions to the extent he or she can claim an amount in excess of $5,700. Thus in certain circumstances, a U.S. taxpayer may receive little or no tax benefit for charitable contributions.
In general, and subject to Canadian income limitations, article XXI(6) of the Treaty restricts charitable donations made to Canadian charitable organizations to the extent that they could qualify in the U.S. to receive deductible contributions if it were resident in the U.S.
Thanks for the write-up. This is one of the great benefits of TaxAct and probably other programs, because it did these calculations for me: the total limit for example and calculated the benefit of the deduction.
I understand why I need so much in charitable contributions before it made a difference. I started with a contribution that was less than the standard deduction, and it did nothing to tax owing. Then as I put more in it gave deduction until not no tax was owing.
It almost seems by what you are saying above that the contribution can only be claimed on either Canadian or US taxes. But I would assume that it can be claimed on both. But if you claim it on the Canadian and it reduces your tax, then you end up having less Foreign Tax Credit. So in this case, the charitable contribution was not claimed on my Canadian tax, only on the US. That way, I avoid the US side.
@petros, If the charitable contribution could have been claimed as a deduction on both your Canadian and US tax returns, then you had the choice to claim it on one or both. Having chosen to claim it only on your US tax return you increased your Canadian tax but reduced your US tax, The combination of these two choices allowed you to create enough Canadian foreign tax credits to totally offset your US tax obligation. By paying more taxes to Canada you ended up owing nothing to the US.
Sounds to me like a wise choice, particularly now that you are no longer a US citizen.
Any idea if such a rule applies to other countries, or is it just Canada? If so, how is that justifiable?
Each country’s tax treaty with US would have to be taken into consideration. It isn’t really justifiable. I don’t even know if the IRS will let me get away with this without a scuffle. It is in keeping with their own site, but I’ve never done it before. Furthermore, on the IRS site dealing with charitable donations, it only mentions the treaty with Canada.
@petros, I have not studied all of them, but it is my impression that this provision of the US-Canada tax treaty is somewhat unique. I have never seen a similar provision in any of the other US tax treaties I have looked at. The US has tax treaties with about 70 countries. It definitely is not permitted for residents of any of the countries with which the US has no tax treaty. And that is most of the 193 countries of the world.
@Howard, the only thing that makes it justifiable is that the Canadian negotiatiors were successful in having included. Every US tax treaty has to be approved by a vote of the US Congress, and this was approved. There are many things that are the same in these treaties – like recognition of the US right to levy and collect US taxes from its citizens resident in the other country. Bur there are often differences. Only a few, for example, allow US citizens to be subject only to the Social Security tax laws of that country without paying double social security taxes in the US. Most US citizens resident abroad are not covered by US social security laws, with two notable exceptions. If you work abroad for a US company than optionally that US company can pay the employer’s share of the social security, in which case the employee working abroad is covered and must also pay US social security. Or the US employer can opt not for its employees abroad to be covered. The choice has to be for all or none of its overseas employees.
The other case is for US citizens who are self employed abroad. They have no option. They are always required to pay US social security taxes. And they most likely must also pay social security taxes to the country where they live, unless there is a specific exemption from this double social security taxation in the tax treaty between the US and that specific country, or vice versa.
@Roger – thanks for the detailed reply. Whatever way they justify it, though, expats who live in some countries are getting preferential tax treatment over others which does not seem fair. I’m surprised it’s even legal.
@howard, I can’t explain it either. But since Congress has to approve each tax treaty, I guess that makes it legal althugh it certainy is not fair. But nothing is fair about the double taxation that is imposed on US citizens living and working or retired abroad.
MarkPineTree, who lives in Brazil where he is a self-employed dual citizen pays a combined 36% of his income in Brazilian + US social seceurity taxes, but self-employed US citizens in France pay French social security taxes only. There is certainly nothing fair about this either, but in the case of Brazil there is no tax treaty whereas with France this is a provision of its tax treaty with the US. These tax treaty provisions enshrine unfairness.
Can Canadian citizens deduct donations made to US charities?
In answer to your question above, in most cases, they can only be deducted against U.S. income. The CRA has a list of allowable ‘charitable deductions’. I believe there might be certain U.S. universities on that list.
@David, the deal is reciprocal. So a Canadian taxpayer should be able to invoke the tax treaty and declare charitable contributions made in the US. Generally, I think that charities are unaware of this, because in my work with charities, I’ve found that they are usually looking for an organization in country that can pass contributions to the project in the other country. That might be safest. But suppose while in the US for a couple months, you made a contribution to a local church that you attended. Well, theoretically, that contribution should be tax deductible because churches also have charitable status in the Canada. Thus, the charitable contributions that I claimed for 2010 were to my local church (Anglican) and to charities which also have branches in the United States. Thus, there is no question that the charity is covered by the Canada/US tax treaty in such cases.
And in this case I have to disagree with Tiger. Theoretically, a treaty covered charitable contribution should be deductible on Canadian taxes. I just think that so few people have ever invoked the treaty in this case that few people even know about this possibility. Even R. Berg in his above comments, would tend to dissuade someone from invoking the treaty (i.e., cross border specialists love caveats and warnings–it tends to make them more indispensible). I invoked the treaty. I needed the contributions to zero out my taxes. So far, my return hasn’t been challenged. But I am waiting every day with dread another f—ing letter from the IRS. Then my peaceful, Canadian-only existence will take another turn (I am no longer an US person since I relinquished my US citizenship in 2011).
You see how this experience has affected me. I can’t even write about it without using expletives and my blood pressure just went up.
Just a note on this! If you are married but will be filing “married, filing separate” in the US because one of you is not a US citizen, then put your receipts in the US citizen’s name. That way, you can use the donations on either taxpayer’s return in Canada, and can also potentially take advantage of the credit in the US.
I am a US citizen resident in the USA. Beginning in 2013, the US Internal Revenue Service restored the privilege of a US citizen making a donation to a “Qualified Charity” directly from his IRA. When this is done, the amount distributed does not appear as income to the donor, in arriving at his “Adjusted Gross Income” total. Thus it is not necessary, nor permitted, to claim a charitable deduction for such a direct transfer from an IRA.
The question is this:
In light of this cross-border donation treaty, may I make a direct transfer from my IRA to a Canadian university? After we arrive at an answer to this question, then the next one is: Are there any US tax implications if this is permitted?
These questions may require an extremely knowledgeable tax advisor since tax laws of two countries are involved. Still, the answer might interest a number of donors.
Thank you, and I look forward to any enlightenment.
I do not know the answer to your question but I can tell you that generally, a Canadian cannot make a donation to a charity across the border and receive donation credit for it on his/her tax return unless the charity is a “Qualified Donee.” If the organization can provide invoices or other documentation that show that the donation is controlled by the giver, it may qualify.
There does seem to be something that could suggest the possibility of what you suggest.
Certain US charitable organizations may also be qualified donees through the operation of the US-Canada Tax Convention so I would imagine it can work both ways:
Here is a list of universities outside Canada to which a Canadian can donate and receive credit for:
There are also institutions that may be considered “Qualified Donees” who have received “a gift from Her Majesty in right of Canada” – i.e., more or less, a gift from a CDN gov agency
My family has had three vacant lots in Windsor, ON which are not serviced, close to wetlands and therefore difficult to sell. I would like to donate them to qualified Windsor charity, and take the tax deduction on my USA tax bill. I do not have any Canadian income and having been paying property taxes since the 1920’s . My only option seems to be to donate the lots and try to get a tax deduction from the IRS.
I have tried reading the IRS rules, but only end up confused.
I would appreciate any help you can give to me.
I am a dual USA/CDN citizen with NO Canadian income. I live, earn income and and pay taxes exclusively in the USA. Can I make a tax-deductible charitable contribution to a Canadian university; that is, receive a tax deduction on my US federal tax similar to contributing to an American charity?
See: http://isaacbrocksociety.ca/2012/04/27/canadian-charitable-donations-may-be-claimed-on-usa-taxes/, which may help you determine.
You reference is to this same page so I don’t understand why you posted that URL. And specifically on this page:
1. All of the discussion deals with individuals with both US AND Canadian income.
2. The statute excerpt quoted above includes this tortured sentence including an exception for universities but does not clarify said exception:
For the purposes of United States taxation, contributions by a citizen or resident of the United States to an organization which is resident in Canada, which is generally exempt from Canadian tax and which could qualify in the United States to receive deductible contributions if it were resident in the United States shall be treated as charitable contributions; however, such contributions (other than such contributions to a college or university at which the citizen or resident or a member of his family is or was enrolled) shall not be deductible in any taxable year to the extent that they exceed an amount determined by applying the percentage limitations of the laws of the United States in respect of the deductibility of charitable contributions to the income of such citizen or resident arising in Canada.
Sorry, I did that in too big a rush — didn’t notice I commented on the same post (as I saw your comment in with all other comments today). Please disregard my too in haste reply. Someone else may weigh in, but you need more than opinion. To get the most accurate answer, best to ask your question to the US IRS or search on https://www.irs.gov/, especially https://www.irs.gov/uac/interactive-tax-assistant-ita-1.
Only if you went to that particular university. Seems likely that’s what you have in mind.
Thanks for the reminder. In the past, my wife (with an unfortunate US birthplace) has indeed sent money to her Ivy league eastern university, before we knew about US arrogance and extraterritoriality. I’ll make sure this NEVER happens again. Good job you’re doing there, stupid democrats!
Hello, all! I read this article with interest and have a similar but unique situation.. Appreciate your advice..: I am posted in Canada on a U.S. Govt job so I derive income from the U.S. only. I’d like to give charitable gifts of money to charities in Canada that would qualify as a charity by the IRS. Can I claim those gifts as an itemized expense on my 1040? Or since I don’t have Canadian income, am I not eligible to deduct those? I read IRS Pub 597 and it looks like I would have to have Canadian income to deduct my charitable donations to a Canadian charity like a church.
The source of your income seems quite irrelevant to me. It is the mutual recognition of charitable contributions that the treaty seems to acknowledge.