Starflex – Quebec Court of Appeal indicates that gifts to charities likely cannot be deducted as business expenses

Art. XXI, para. 7 of the Canada-U.S. Convention provides (subject to conditions) that a gift by a Canadian with U.S.-source income to a qualifying U.S. charity is to be treated the same as one to a registered Canadian charity. The Cour du Québec found that a Quebec provision, which exempted income for Quebec purposes if it also was exempted under one of Canada's treaties, did not require Quebec to provide donation deductions for gifts to U.S. charities.

The Quebec Court of Appeal did not deal with this aspect of the case. The taxpayer had requested, at the trial's opening, to amend its pleadings to claim, in the alternative, that its donations made to U.S. charities were deductible as business (promotional) expenses, relying on Olympia. In confirming the refusal below to allow this amendment, the Court of Appeal essentially found that Olympia was inconsistent with the Symes approach to statutory interpretation, stating:

The specific tax treatment provided in the TA respecting gifts must prevail similarly to the pronouncements of the Supreme Court in Symes… . The Court specified there that child care expenses could not be deducted as business expenses under the applicable tax principles, in the face of a specific and complete regime for child care expenses provided in section 63 of the Income Tax Act. The same reasoning should be favoured in addressing the treatment of gifts.

Neal Armstrong. Summary of Emballages Starflex Inc. v. Agence du revenu du Québec, 2016 QCCA 1856 under s. 18(1)(a) - income producing purpose.