Navigating Cross-Border Donations: A Guide for Not-for-profits in the United States
With Canada and the United States sharing such a close relationship in various facets of life, many Canadians have personal and professional ties south of the border. While Canadians may be interested in supporting your U.S. not-for-profit, when it comes to tax implications, navigating the complexities of being able to claim a U.S. donation on Canadian taxes can be tricky for them. In this guide we'll cover some of the most common ways to make it easier for your Canadian donors to receive tax credit for their support of your U.S. 501(c)3.
Option 1: Accept Donations Directly
While the Canada-U.S. Tax Treaty is recognized as being quite progressive in its facilitation of cross-border donations, it's usefulness is limited by the fact that a donor needs income in the country where the donation is being made. Meaning, if a Canadian donor does not also have U.S. based income, they cannot claim the donation on their Canadian taxes.
Donors who happen to qualify as "commuters" working and earning income in the Unites States, but living and file taxes in Canada (and claiming their income in Canada), are allowed to waive this U.S. income requirement and are able to claim donations to U.S. charities directly on their Canadian taxes. An example would be individuals living in Windsor, Ontario, but working in Detroit, Michigan.
Beyond these narrow, donor controlled conditions, as a U.S. based charity there is one additional way you can accept Canadian donations directly while providing tax credit in Canada, and that is to become a "qualified donee".
For universities and colleges, if you meet all the requirements, including being a school that ordinarily has Canadian students, you can join the over 500 higher education institutions which are already designated as qualified donees, and therefore can issue official donation receipts.
There are two other entities outside of Canada that also are automatically considered qualified donees. The United Nations and its agencies, and His Majesty in the Right of Canada (meaning the Government of Canada). While being the United Nations or the Canadian government is not a viable option for anyone reading this post, there is one related avenue. Canada allows that foreign charities, including those in the United States can become qualified donees for a limited period if the Canadian Government makes a gift to your charity and it is registered with the Canadian Revenue Agency (CRA). This is not a viable path for most organizations. As you can see from the official list, the Council for Canadian American Relations in New York is the only U.S. charity currently recognized as a qualified donee via this method.
Note that if your organization does manage to become a qualified donee under one of the above methods, it is expected that donation receipts be issued in a form compliant with the Canadian Income Tax Act.
Option 2: Utilize Third-Party Cross-Border Partners
For organizations receiving occasional larger gifts from Canadian 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). Because CCAR is recognized as a qualified donee by the CRA, they are able to issue official tax receipts to Canadian donors for gifts they receive, and in turn, make grants to U.S. based organizations. A second option is CAF Canada, the Canadian based arm of Charities Aid Foundation in the U.K. CAF Canada specializes in routing giving from Canada to hundreds of international organizations, including those the United States.
Option 3: Establish a Canadian registered charity.
For organizations with a significant Canadian donor community, or potential community, using a third party becomes costly and it is often worth establishing a full fledged Canadian registered charity to both to accept gifts and steward donor relationships. These "Friends of" organizations can support specific causes abroad, including those in the United States. You will often find Canadian based charities which are related to U.S. based organizations and serve to also carry on programs in Canada, such as Nature United Canada which is affiliated The U.S. Nature Conservancy. The Canadian based organization issues Canadian tax receipts directly to donors. While the administrative burden and legal/accounting costs can easily get into thousands, or tens of thousands of dollars, a "Friends of" organization can also serve to engage and steward Canadian donors, through volunteer board service and by hosting events, making this a worthwhile investment for many organizations.
Final Considerations:
It's important to remember that Canada has its own standards for tax receipts which are different than those in the United States. 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 Canadian donors can be complex, but with careful planning and a clear understanding of the available options, not-for-profits in the United States can effectively harness the generosity of supporters across 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.
For a deeper dive on operating in Canada, I recommend this post from canadiancharitylaw.ca
To learn more about the reverse case, check out the post: Navigating Cross-Border Donations: A Guide for Not-for-profits in Canada.
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