Harder To Donate Outside Canada?

The March 29, 2012 federal budget proposed changes to rules regarding tax credits for donations to foreign charitable organizations. These changes increase the criteria that a foreign charitable organization must meet in order to issue tax receipts, but what remains to be seen is whether, in practice, more organizations will find themselves on the approved list.

Generally, Canadians do not receive tax relief for donations to foreign charitable organizations, and Canadian foundations cannot rely on donations to charities outside Canada to maintain their own charitable status unless those donations are made to a qualified donee. The United Nations (and its agencies) and certain prescribed universities outside Canada (those that have a student body that ordinarily includes students from Canada) are examples of qualified donees. In addition, a Canada-US treaty provision allows a Canadian individual or taxable corporation with US-source income to obtain limited tax relief for donations to US charities.

Currently, other foreign organizations may also become qualified donees if they have received a gift from the federal government in the tax year or the previous 12 months. In practice, the charity or the federal department that made the gift proves to the Charities Directorate of the CRA that a gift has been made and that the charity meets the requirements for registration as a charitable organization in Canada (other than Canadian residence). The CRA publishes a list of qualifying charities from time to time. The most recent list, published on budget day on the CRA's Charities and Giving website (www.cra-arc.gc.ca/chrts-gvng/qlfd-dns/qd-lstngs/gftsfrmhrmjsty-lst-eng.html), includes only nine foreign charities.

The budget proposes to change how organizations outside Canada become qualified donees for Canadian tax purposes. In addition to the existing requirements, the CRA will register organizations as qualified donees only if it determines, in consultation with the Department of Finance, that the charity is carrying on disaster relief activities, is providing urgent humanitarian aid, or is carrying on activities in the national interest of Canada. This change will come into effect after the later of January 1, 2013 and the date of royal assent. No definition has yet been proposed to specify what activities might be in the national interest of Canada.

The CRA has released details that add to the proposal in the federal budget (see "Gifts to Foreign Charitable Organizations," www.cra-arc.gc.ca/gncy/bdgt/2012/qa02-eng.html). Although the budget stipulated that the foreign organization must carry on the approved activities in order to qualify, the CRA has clarified that only one of the current activities must be related to disaster relief or urgent humanitarian aid, or be in the national interest of Canada. The CRA has also clarified that foreign foundations are specifically excluded.

The nine organizations that currently meet the criteria for qualified donees will maintain that status until the expiration date connected with the federal government's most recent pre-budget gift has passed. The CRA has advised that it will publish more information, and presumably the approved listing, on its Charities and Giving website.

Because very few foreign charities are currently listed as qualified donees, this change is unlikely to affect many charities in the short term. However, some observers have suggested that the government will now choose to give to more foreign charities than it has in the past, thus expanding the list of qualified donees (although this increased giving is not part of the budget proposal and there is no evidence for it in the budget). Therefore, individuals and corporations interested in giving to charities outside Canada should check the list periodically to see whether this change has occurred. Charitable organizations should also check to see which foreign charities they will be able to give to, and foreign charities should start planning now to ensure that they meet the new criteria.

Robert L. Miedema and Amy G. Gibson Saab
BoyneClarke LLP, Halifax
rmiedema@boyneclarke.ca and

Canadian Tax Focus
Volume 2, Number 2, May 2012
©2012, Canadian Tax Foundation