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:
(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.