Canadians and Ability to Claim Donations to US Charities

From Canada Revenue Agency (CRA) website: Gifts to U.S. Charities Generally, if you have U.S.-source income, you can claim a gift to a U.S. charity if the charity meets the following conditions: it is generally exempt from U.S. tax; it could qualify in Canada as a registered charity if it were a resident of Canada and created or established in Canada. You can claim the eligible amount of your U.S. gifts up to 75% of the net U.S.-source income you report on your Canadian return.

In interpreting if the US charity “could qualify in Canada…” the CRA has indicated in a January 2023 letter that “a gift made by a Canadian resident to a U.S. 501(c)(3) organization will be an eligible gift for purposes of… a non-refundable tax credit (individuals) under section 118.1 of the Act, subject to the income limitations, described in those sections, from U.S. sources.”

As Eliot Institute is a U.S. 501(c)(3) organization – a donation made to Eliot by a Canadian would be considered an eligible donation, SUBJECT TO the restriction that such donations are limited to 75% of your net US source income in a particular year. 

What is your net US source income? In general terms you would look at your Canadian income tax return and determine how much of the “net income” figure arises from US sources; so it would include income such as dividends from US corporations, US source interest income, US rental income, as well as the taxable portion of capital gains on US property (arising for example on the sale of US securities or US real estate) less expenses related to that income.

In Canada – charitable contributions made in a year qualify for a tax credit (i.e. a certain percentage of your donation goes against tax you owe in the year; so, if for some reason you have no tax payable – the donation won’t help you in that year). 

BUT you don’t have to claim donations in the year you made them; you can carry forward any unused donations for five more years.  People will often carry forward donations in Canada because the first $200 in donations in a year qualifies for a credit of approximately 20% (the lowest personal tax rate) but once the donations you are claiming in a year exceed the first $200 you will receive a tax credit at the highest personal tax rate (in BC approximately 45%). 

If a Canadian donor has US source net income or will within the next 5-year period and is paying income taxes in Canada, then a donation to Eliot should result in a tax credit (on the portion of a donation over $200) of approximately 45% of that donation.

Please Note:  Eliot Institute does not provide tax advice. The above material has been prepared for informational purposes only and you should consult your own tax, legal and accounting advisors before engaging in any transaction.