Canada and the United States of America are two of the most generous nations on earth. Most of our giving decisions are driven by personal connection with a cause, moral values, personal philosophies and social pressures. Our charitable mindset benefits numerous worthy groups while also assisting in lowering the giver’s tax bill. And although tax benefits are unlikely the principal reason for making a gift to a non-profit organization, they often impact the timing and the amount of the gift.
The rules on tax deductibility and tax benefits related to charitable contributions in the US and Canada are not alike. They vary depending on the types of property contributed, such as cash, real estate or personal property; to whom the contribution is made, a tax-exempt registered public charity or a private foundation; how the contribution is made, whether individually or through a corporation, trust or will.
A greater complexity arises when an American donor gifts to a Canadian charity or a Canadian trust provides a benefit to a charitable organization in the US. The challenge here is to ensure that the contribution is made to a qualified organization to make it tax-deductible in the resident country of the donor. The deduction is further restricted to the income generated from the donee country.
On the flip side, non-profit organizations which are registered to receive donations from foreign donors have strict policy and disclosure requirements to maintain their eligible status and provide tax benefits to foreign donors. A failure to meet such requirements may result in a loss of a tax-exempt status. Charities which are aspiring to become international and fundraise from foreign donors must understand their tax compliance obligations to qualify for the tax exempt status in a foreign country.
If you are engaged in a cross-border activity as either a charity or a donor and are not sure whether you fully understand and follow the rules or derive a maximum tax benefit, our cross-border tax specialists at Bazar McBean LLP would be happy to assist you.