Article 21

Cases

Chua v. MNR, 2001 DTC 5104 (FCTD)

McKeown J. issued an order (with which counsel for the Minister was in agreement) that would permit Parliament two years in which to provide new legislation failing which Article 21, paragraph 3 of the Third Protocol to the U.S. Convention would become unconstitutional and invalid.

See Also

Emballages Starflex Inc. v. ARC, 2015 QCCQ 7455 (Cour du Québec)

Quebec provision providing Quebec exemption to amounts exempted by Canada did not apply to Art. XXI, para. 7 of the US Convention

The taxpayer, which derived much of its income from sales to the U.S., donated $493,000 to U.S. charities which were not Canadian registered charities. In finding that the taxpayer was not entitled to deduct this amount as a charitable deduction under the Taxation Act (Quebec), Pokomandy JCQ referred to Art. XXI, para. 7 of the Canada- U.S. Income Tax Convention and stated (at paras. 86, 89-91, TaxInterpretations translation):

…Quebec is not bound by this convention, entered into between the Government of Canada and the United States, in a matter within its jurisdiction. …

The following provision is set out in the Taxation Regulations:

488R1…

(e) an amount…that is exempt from income tax in Québec or in Canada by virtue of a provision of a tax agreement entered into with a country other than Canada;

This provision is directed at avoiding double taxation and for that purpose only a tax convention concluded by Canada with another country applies to Quebec if its provisions exempt otherwise-taxable income from tax in Canada.

…Paragraph 7 of Article XXI…confers tax relief and not exemption from tax on income otherwise taxable in Canada.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(a) - Income-Producing Purpose claiming a charitable deduction inconsistent with treating same outlay as a business expense 131

Administrative Policy

17 November 2015 Roundtable, 2015-0614251C6 - 2015 TEI Meeting Q7 Donations to qualifying US charity

Canadian domestic sourcing rules apply in determining whether a Canadian corporate donor to a U.S. charity has U.S.-source income for Treaty purposes

(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

5 October 2012 Roundtable, 2012-0451231C6 F - Gifts to American charities

U.S. charities are not qualified donees under Art XXI(7) of U.S. Convention

Does Art. XXI, para. 7 of the Canada-U.S. Convention allow charitable foundations as defined in s. 149.1(1) to make donations to U.S. charitable organizations that are exempted under IRC s. 501(c)(3)?

[P]aragraph 7 of Article XXI of the Convention does not allow for a U.S. charity to be treated as a "qualified donee" within the meaning of subsection 149.1(1).

Consequently, Article XXI, paragraph 7, of the Convention does not allow charitable foundations to make donations to U.S. charities.

2007 Ruling 2005-0149681R3 - Article XXI of Canada-US Tax Convention

Activities undertaken in Canada, including through leased premises, that related primarily to fund raising would not constitute a business of the U.S. exempt organization.

12 April 1999 Memorandum 981272

Before any consideration could be given to allowing an exemption for investment income paid to a U.S. master trust, the trust would be required to provide documentation that will clearly explain how it acted in trust for, or as agent for, the ultimate beneficial owners, the identity and residency of each beneficial owner, and the details of how the income was distributed to them.

17 February 1997 T.I. 962593

Where a trust resident in Canada has made a designation under s. 104(22) with respect to U.S.-source income earned by the trust and distributed to a beneficiary who is resident in Canada and has made a donation to a U.S. charity, such income will not qualify as income arising in the United States for purposes of paragraph 6 of Article XXI of the U.S. Convention, given that s. 104(22) recharacterizes the income only for limited purposes.

1996 Corporate Management Tax Conference Tax Conference Round Table Q. 21

In the context of Article XXI of the Canada-U.S. Convention, "related person" has the meaning assigned in the Act.

"Where a person is a member of a partnership, the Department will look through to the members in determining whether a particular member is related to the person from which the income is derived and whether paragraphs one or two of Article XXI of the Convention are applicable in respect of that member."

15 January 1993 T.I. 923421 (November 1993 Access Letter, p. 508, ¶C180-152)

Re taxation of a U.S. charitable organization's share of dividends received by a U.S. partnership from a Canadian resident corporation.

Locations of other summaries Wordcount
Tax Topics - Treaties - Income Tax Conventions - Article 22 17

25 April 1991 T.I. (Tax Window, No. 2, p. 28, ¶1216)

Exempt organizations created in a country with which Canada has a tax treaty are residents of that contracting state for treaty purposes and are therefore entitled to the same benefits as those provided under a tax treaty to other residents of that state. For example, income or taxable capital gains derived by charitable organizations described in Article XXI(1) of the Canada-U.S. Convention, which is resident in the United States, will be exempt from Canadian tax by virtue of that paragraph provided that Article XXI(3) does not apply.

25 March 1991 T.I. (Tax Window, No. 1, p. 18, ¶1169)

Where a tax-exempt organization is a member of a partnership which has been subject to Part XIII tax on income payments received by it, RC on application of the exempt partner will refund the difference between the pro rata share of the Part XIII tax and the amount which would have been withheld if the exempt partner had received the income directly.

87 C.R. - Q.3

a U.S. pension trust or charitable trust is entitled to the exemption provided in paragraph 2 of Article XXI of the Canada-U.S. Income Tax Convention (1980).

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