Feigenbaum Law

Case Alert: Donations to US Charities for Quebec Residents

Personal Tax Planning
December 14, 2016

A recent decision released by the Quebec Court of Appeal has left residents of the province without certain benefits under the Canada-U.S. Tax Convention (the “Treaty”), impacting the availability of tax deductions for donations made by Canadian companies to US charities.

Article XXI(7) of the Treaty contains provisions which allow Canadian corporations to deduct from their taxable income the value of donations made to a US registered charity, as if those donations had been made to a Canadian charity. Quebec is not a party to the Treaty, but section 488 of Quebec’s Taxation Act (the “Act”), contains language that allows deductions for amounts which would be exempt from income tax in Canada through the operation of an international agreement or treaty.

In the initial decision, Revenu Quebec argued that Emballage Starflex Inc. (“Starflex”) could not use US donation receipts to claim deductions under the Act. The Court of Quebec agreed. Rather than considering the underlying purpose of section 488 (which is to apply Canadian agreements with other countries to tax regulation in Quebec), the Court based its decision on a narrow, technical interpretation of the relevant provisions. In finding that the words “relief from taxation” in the Treaty did not equate to an “exemption from taxation” as required by section 488, the Court also failed to apply a common sense interpretation; the effect of the relief contemplated by Article XXI(7) is to permit a corporation to deduct charitable donations from its income.

Starflex appealed, but was not successful. Unfortunately, the company did not advance any argument with respect to the interpretation of section 488 of the Act, and accordingly the appeal did not address the lower court’s decision. This decision now leaves the lower court’s findings in place, and precludes individuals in Quebec from claiming the deductions available to residents in the rest of Canada.

This new status quo raises questions as to whether there will be any proposed amendments to section 488 of the Act to address these findings. In the meantime, any Quebec residents should think carefully when making donations to charities in the United States.

The experienced cross-border tax team at Feigenbaum Law provides personal, tailored services to professionals and corporations worldwide. If you have questions about the tax status of your charitable donations, or require any advice related to ongoing tax planning, we can assist. Contact us by email, or toll free at (877) 275-4792.

Tagged: charities, not-for-profit, recent decision