Cases
Priority Foundation v. Canada (National Revenue), 2025 FCA 180
The appellant (“Priority”) appealed the publication of a notice revoking its charitable registration, made on the basis that it had been using its funds to make donations to entities that were exempted from U.S. taxation under Code s. 501(c)(3) but which were not registered charities and qualified donees. Priority relied on Art. XXI(7) of the Canada-U.S. Income Tax Convention (the “Convention”):
For the purposes of Canadian taxation, gifts by a resident of Canada to an organization that is a resident of the United States, that is generally exempt from United States tax and that could qualify in Canada as a registered charity if it were a resident of Canada and created or established in Canada, shall be treated as gifts to a registered charity; however, no relief from taxation shall be available in any taxation year with respect to such gifts (other than such gifts to a college or university at which the resident or a member of the resident's family is or was enrolled) to the extent that such relief would exceed the amount of relief that would be available under the Income Tax Act if the only income of the resident for that year were the resident's income arising in the United States.
In rejecting the submissions of Priority that Art. XXI(7) required its donations to be treated as if made to qualified donees, Roussell J.A. indicated:
- The use of the semicolon in the first clause of Art. XXI(7) as well as of "however" at the beginning of the second indicated that the second-clause qualifier was closely related to the first clause.
- Although the current version of Art. XXI(7) notably had been broadened from the 1956 version by replacing a reference to “the computation of taxable income” by a reference to "for the purposes of Canadian taxation," this did not establish “that the phrase ‘for the purposes of Canadian taxation’ was intended to be all-encompassing, such that it would impact the requirements for ongoing charitable registration under the ITA for Canadian registered charities” (para. 68).
- Furthermore, the emphasis of the Convention on providing relief from income and capital taxes did not support Priority's claim that the Convention extended to the requirements that charities must satisfy to maintain their charitable registration.
- If Art. XXI(7) had the effect of deeming a U.S. 501(c)(3) entity to be a registered charity and therefore a qualified donee, this would imply that such a donee was required to keep Canadian records; and it would be “highly unusual that the Minister's powers of revocation mentioned in paragraph 230(2)(a) would extend to U.S. 501(c)(3) entities” (para. 72)
- A reading of the U.S. Treasury Technical Explanation and an IRS guidance notice suggested that the drafters of the Tax Convention did not envisage that it would go as far as interfering with each country's authority to determine the statutory requirements a registered charity must meet to maintain its charitable registration; and supported the view that “the purpose of the treaty was to provide relief from the imposition of taxes and not to regulate the conditions an organization must satisfy to maintain its charitable registration in the organization’s resident state” (para. 85).
- Furthermore, Priority's submission, if correct, would suggest that a “Canadian resident individual or corporate taxpayer with no U.S. income wishing to donate to a specific U.S. charity to whom Priority made gifts could have circumvented the U.S. income limitation by making the gift to Priority” which “could not have been the result that was intended by the contracting states” (para. 86).
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), see also 2016 QCCA 1856
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 | 143 |
Administrative Policy
15 February 2023 Internal T.I. 2022-0925731I7 - Qualified donee - Article XXI of Canada-US Treaty
A public foundation disbursed funds, by way of unrestricted gifts, without direction and control over the resources gifted, to certain U.S. 501(c)(3) organizations during taxation years ending prior to 2022. Art. XXI(7) of the Canada-U.S. Treaty provided that, for purposes of Canadian taxation, a gift made by a resident of Canada in a taxation year to an organization - that was resident in the U.S., was generally exempt from U.S. tax, and could qualify in Canada as a registered charity if it were created or established and resident in Canada - as a gift to a registered charity, subject to potential numerical limitations. The Directorate stated:
Generally, organizations organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, educational, or other specified purposes and that meet certain other requirements are tax exempt under [IRC] section 501(c)(3). The CRA accepts that, pursuant to the tax relief measure described in paragraph 7 of Article XXI … a gift made by a Canadian resident to a U.S. 501(c)(3) organization will be an eligible gift for purposes of the deduction in computing taxable income under section 110.1 …. or a non-refundable tax credit … under section 118.1 … subject to the income limitations, described in those sections, from U.S. sources.
The Directorate (after describing the more elaborate subsequent rule) noted that “prior to June 23, 2022, a charity’s registered status was subject to revocation, pursuant to subsections 149.1(2), (3) [or] (4) … if the charity made disbursements by way of gift to a donee that was not a ‘qualified donee’,” and then noted that U.S. 501(c)(3) organizations would not qualify as “qualified donees” as defined in s. 149.1(1) assuming that they were not registered with CRA as described in paras. (b) or (c) of that definition. The Directorate stated that the “Canada-U.S. Treaty provides limited tax relief to residents of Canada and the U.S. who may be subject to double taxation on income and on capital imposed on behalf of each country” and then concluded:
[O]ther than the United Nations or its agencies, only foreign entities that have applied for and were registered by the Minister are a qualified donee … . [S]ince subsections 149.1(2), (3) and (4) … govern the revocation of a charity’s registered status, and not the imposition of taxes, the Canada-U.S. Treaty does not apply to those provisions. Accordingly … Article XXI[(7)] of the Canada-U.S. Treaty does not deem a U.S. 501(c)(3) organization to be a qualified donee, for purposes of subsections 149.1(2), (3) and (4) … .
The Directorate indicated that essentially the same analysis applied to gifts made to U.S. 501(c)(3) organizations by a private foundation or a charitable organization.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 149.1 - Subsection 149.1(3) | a donation to a U.S. 501(c)(3) organization was grounds for revocation notwithstanding Art. XXI(7) of the Canada-US Treaty | 301 |
25 August 2021 External T.I. 2020-0866131E5 - Gifts by Will
Will a bequest made by will to a U.S. organization qualify for a charitable donation credit on the individual’s final return? CRA summarized the rules under s. 118.1(5.1)(b) and s. 118.1(1) – charitable gift – para. (c) generally permitting a graduated rate estate (GRE) of the individual to carry back the gift amount (for the donation to a charity of property received by it on the individual’s death) to the terminal return of the individual.
CRA went on to discuss the gift limit in para. (a) of the definition of “total gifts” in ss. 118.1(1) and the limited relief provided for gifts to US organizations under Art. XXI(7) of the Canada-U.S. Convention. In that latter regard it stated:
The Canada-U.S. Tax Convention (the Treaty) provides limited tax relief with respect to gifts made by Canadian residents to certain U.S. organizations that are not qualified donees. Pursuant to paragraph 7 of Article XXI of the Treaty, a gift made by a resident of Canada in a taxation year to an organization that is resident in the U.S. that is generally exempt from U.S. tax, and that could qualify in Canada as a registered charity if it were created or established and resident in Canada, will be treated as a gift to a registered charity. In this regard, the amount of relief that would be available under the Act is restricted to the income of the resident for that year from U.S. sources. However, the restriction to income from U.S. sources does not apply to the eligible amount of a gift to a college or university at which the resident or a member of the resident's family is or was enrolled. The CRA accepts that any organization that is exempt under section 501(c)(3) of the U.S. Internal Revenue Code will qualify for the purposes of paragraph 7 of Article XXI of the Treaty.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 118.1 - Subsection 118.1(1) - Total Charitable Gifts - Paragraph (c) | carryback to terminal return of gift made by will to a US charity | 360 |
17 November 2015 Roundtable, 2015-0614251C6 - 2015 TEI Meeting Q7 Donations to qualifying US charity
(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
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.
15 March 2006 External T.I. 2005-0124911E5 F - Prestation compensatoire française
CRA found that a lump sum paid in two instalments paid as a “compensatory allowance” under French law by a French-resident ex-spouse of the Canadian-resident taxpayer was not includible in her income as a “support amount,” as defined in ITA s. 56.1(4). CRA found that this result was not altered by other-income Article (Art. 21) of the Canada-France Convention.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 56.1 - Subsection 56.1(4) - Support Amount | life annuity, but not lump sum, received from divorced ex-spouse in France as “compensatory allowances” under the French Civil Code was taxable as support | 166 |
| Tax Topics - Treaties - Income Tax Conventions - Article 18 | life annuity, was to be treated for Treaty purposes as alimony or similar payments since it was treated by CRA as a support amount under ITA | 210 |
| Tax Topics - Treaties - Income Tax Conventions - Article 3 | treatment of a life annuity under ITA, as a support amount meant that it was to be treated for Treaty purposes as alimony or similar payments | 136 |
12 April 1999 Income Tax Severed Letter 9812726 - ARTICLE XXI CANADA-U.S. (4125-U5-100-21)
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 External T.I. 9625935 - SOURCE OF CANADIAN TRUST INCOME RE ART XXI(6)
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 | 19 |
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).