Navigating Cross-Border Donations: A Guide for Not-for-profits in Canada
As a nonprofit organization based in Canada, you may find yourself in the fortunate position of receiving donations from generous supporters across the border in the United States. While this presents an excellent opportunity to broaden your donor base and further your mission, navigating the complexities of cross-border giving can sometimes feel daunting. Fear not! In this blog post, we'll explore some practical strategies and considerations to help streamline the process and maximize the impact of donations from US donors.
While donors can always contribute to your cause, larger or more frequent gifts may prompt them to seek tax benefits on their U.S. taxes. Fortunately, the Canada-U.S. Tax Treaty provides a framework for recognizing such donations, but certain criteria must be met.
Before we get into the three main options available for accepting U.S. donations, take note that if your organization is heavily involved in activities in the United States (other than investments), or if you consistently receive donations or other revenue exceeding $50,000 USD from U.S. sources, you'll probably need to submit a version of the U.S. 990 charity return. Examples of organizations doing this include University Of Toronto and many other large universities, The Canada Council for the Arts, and the National Arts Centre. If this case applies to your organization, you should review the Internal Revenue Service (IRS) guidance and consider U.S. legal counsel to ensure compliance.
Now, with that said, for most Canadian charities looking to accept donations from U.S. tax-payers, there are three main options: accept the gifts directly, use a third party partner, or establish a U.S. entity to support your mission.
Option 1: Accept Donations Directly
One approach is to directly accept donations from U.S. donors. However, it's crucial to note that special conditions apply for donors to claim these gifts on their U.S. taxes. For instance, if the donor has income in Canada, donations to a charity registered with the Canada Revenue Agency (CRA) may be claimed against their Canadian income. Additionally, the charity must qualify as a "public charity" under IRS rules, which may necessitate documentation submitted to the IRS, but importantly, this does not negate the need for Canadian income to claim against.
Special considerations also apply to alumni and their families. If your organization is a college or university, the Canadian income requirement may be waived for donors or their family members who were enrolled.
So if your donor has no Canadian income and they are not an alumni or family member of an alumni, they will be able to donate and receive a Canadian tax receipt directly from your organization, but they will not be able to use that receipt to claim any charitable deduction in the United States.
Option 2: Utilize Third-Party Cross-Border Partners
For organizations receiving occasional larger gifts from U.S. donors, partnering with organizations specializing in cross-border support can be beneficial. While you should expect higher service fees than your normal donation processing, these partners will facilitate gifts and ensure compliance with relatively low cost and effort on your part.
One established option, particularly for cultural organizations, is the Council for Canadian American Relations (CCAR). They facilitate cross-border donations for approximately 250 cultural institutions. These donations encompass various forms, including cash, securities, and Arts and Cultural Objects, provided as outright gifts. A second option is CAF America, the U.S. based arm of Charities Aid Foundation in the U.K. CAF America specializes in routing giving from the United States to hundreds of international destinations, including Canada.
Option 3: Establish a U.S.-Based 501(c)3
For organizations with a significant U.S. donor community, or potential community, using a third party becomes costly and it is often worth establishing a full fledged United States based 501(c)(3) organization both to accept gifts and steward donor relationships. These "Friends of" organizations can support specific causes abroad, including those in Canada. Examples abound, such as the Stratford Festival, Shaw Festival, Toronto International Film Festival, and Nature Conservancy of Canada. Like the third-party organizations above, these are independent organizations which will issue U.S. tax receipts directly to donors. While the administrative burden and legal/accounting costs can easily get into thousands, or tens of thousands of (U.S.) dollars, a "Friends of" organization can also serve to engage and steward U.S. donors, through volunteer board service and by hosting events, making this a worthwhile investment for many organizations.
Final Considerations:
It's essential to remember that tax compliance ultimately falls on the donor in the United States. While issuing official receipts is customary, you should advise U.S. donors to seek tax counsel for specific guidance. And of course, this article discusses some options and best practices, and does not constitute tax or legal advice!
Organizing to facilitate cross-border donations from U.S. donors can be complex, but with careful planning and a clear understanding of the available options, not-for-profits in Canada can effectively harness the generosity of supporters south of the border. By providing accessible avenues for giving and ensuring compliance with relevant regulations, you can show your donors that their support is meaningful to you, and that you want to make giving as easy as possible for them.
To learn more about the reverse case, check out the post: Navigating Cross-Border Donations: A Guide for Not-for-profits in the Unites States.
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